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Westfield Results Demonstrate Decline In U.S. Mall Market

Tyler Durden's picture





 

Westfield, the world's largest mall operator, announced results earlier today, which demonstrated substantially accelerating real estate writedowns, primarily in the US. For the six month period ended June 30, Westfield announced $2.5 billion in property revaluations, after posting $2.6 billion in comparable charges for the entire 2008 year period: the company is finally marking its asset book to something vaguely resembling reality. 

As a result of deteriorating operations, the company also announced it would reduce its dividend payout from 100% of earnings to 75%, in anticipation of a liquidity crunch resulting from over $19 billion in debt maturing between 2010 and 2014.

Other notable data: U.S. retail sales on a per square foot basis declined by 6.2% from $437 to $410 just over the past six months, and by 10.8% from June 2008: the worst deterioration of any of the company's regional properties.

Furthermore, cap rates have increased by over 0.3% across Westfield's four regions over the last 6 months, with the U.S. surprisingly representing the highest end range.

Also, notably the weakest retail categories were jewelry, fashion and leisure, all of which declined by over 10% year over year.

Net-net: the news that the deterioration in the U.S. mall market shows no indication of abating, and rent capacity is substantially deteriorating, not only for the company's 8,889 US malls, but for bankrupt GGP and its competitors, will likely be sufficient reason for other garbage REITs with deteriorating performance metrics to see their stocks jump once again for no other reason aside from... well, no other reason, which seems to be same principle that drives stock trading each and every day in all other garbage sectors.

 


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Tue, 08/25/2009 - 22:25 | Link to Comment Anonymous
Tue, 08/25/2009 - 23:50 | Link to Comment passive_lurker
passive_lurker's picture

Timmy and Ben will do everything in their power to prevent the free market from functioning properly.

I hope it won't be enough.  The economic reset button needs to be pushed although I wonder if things will be any different on the other side of the abyss.

Wed, 08/26/2009 - 01:47 | Link to Comment D.O.D.
D.O.D.'s picture

From where you are now, you can't imagine what the bottom will be like.

Tue, 08/25/2009 - 22:27 | Link to Comment Fish Gone Bad
Fish Gone Bad's picture

The Mills Corp. shopping mall in Orange Ca., "The City" is turning into an outlet mall.  People are walking around with drink cups and fast food.  I did not see a lot of shopping bags there like there used to be.

Tue, 08/25/2009 - 22:40 | Link to Comment hohack
hohack's picture

Just need a casino.... and $$$

Tue, 08/25/2009 - 22:35 | Link to Comment Pizza Delivery Man
Pizza Delivery Man's picture

Tyler-

Bitch please...the recession is over.

This is sarcasm - For those who fail to realize internet sarcasm.

However,.........Asia has enough $$$ to buy whatever they want (they've already started buying mortgages)

Tue, 08/25/2009 - 22:44 | Link to Comment Terminal Frost
Terminal Frost's picture

Food courts and steamed green shoots.  Tasty.

The depth of the financial pain to be felt in the real economy in the next 36 months is staggering.

CRE balloons/maturities....CHECK.

Alt-A and Option ARMS....CHECK.

Increasing unemployment....CHECK.

State and local budget crises....CHECK.

Disastrous fiscal/social policies coming out of Congress....CHECK.

Tue, 08/25/2009 - 22:49 | Link to Comment Project Mayhem
Project Mayhem's picture

We are go for main-engine ignition.

Tue, 08/25/2009 - 22:52 | Link to Comment Terminal Frost
Terminal Frost's picture

Thank God for the Zimbabwe Ben booster rockets.

Tue, 08/25/2009 - 23:36 | Link to Comment TumblingDice
TumblingDice's picture

Obama(tm) remote control system activated.

Wed, 08/26/2009 - 00:19 | Link to Comment texpat
texpat's picture

Inflate the money bag!

Tue, 08/25/2009 - 22:39 | Link to Comment BrianOFlanagan
BrianOFlanagan's picture

I'm no REIT bull, but the numbers above are actually better than expected.  And if cap rates on U.S. malls are really 6.8%, then REITs are going higher - much higher.  If you put a 6.8% cap rate on SPG, it's an $80 stock.

Tue, 08/25/2009 - 23:33 | Link to Comment Anonymous
Wed, 08/26/2009 - 15:55 | Link to Comment Gilgamesh
Gilgamesh's picture

Simon @ 80 tomorrow if this pace keeps up.

Wed, 08/26/2009 - 00:09 | Link to Comment KevinB
KevinB's picture

I dunno - my wife and daughter drove from Toronto to Buffalo to go shopping last Sunday. When she returned, she said that traffic at the mall was significantly less than she normally sees, and the two restaurants they ate in were offering great deals (4 course 12-oz prime rib dinner for $23) and were simultaneously empty. And an old girl friend runs an independent burger joint just outside Cleveland, and she says business at her place (average check is less than $7 per person) is going well, but higher priced independents and even some chains like Applebee's are closing stores. It just doesn't sound like an environment where REIT's are going to recover soon.

Wed, 08/26/2009 - 00:13 | Link to Comment MinnesotaNice
MinnesotaNice's picture

I don't think you can say "better than expected" unless you are making fun of CNBC...   :-)

Wed, 08/26/2009 - 00:43 | Link to Comment Anonymous
Wed, 08/26/2009 - 01:09 | Link to Comment Anonymous
Wed, 08/26/2009 - 02:11 | Link to Comment Froggy
Froggy's picture

Most of those deals that Westfield did since 2004 transacted below 6% cap.  That range went up to 10% cap and with that maturity schedule (just like everybody elses) cap rates are going vertical.  How do you refinance your 5.5% cap deal from 06 that was levered up 80-90% Interest Only 5 year money when your FMV is now 9% cap?  Throw in rents dropping 20% and vacancies persisting in the 10-15% range, and pretty soon your LTV is 150%+.  How do you underwrite that deal to a more moderate 60% LTV without kicking in a shitload of cash?  Answer: You can't.

Wed, 08/26/2009 - 08:00 | Link to Comment BrianOFlanagan
BrianOFlanagan's picture

Agreed that those that used 80-90% leverage are in trouble.  But that is not Westfield and most of the major REITs.  Westfield's leverage is only 34%.  Simon's is 56%.  Cap rates may indeed go to 10%, but if they don't, REITs are going higher.  Again, I'm no bull, but I respect the bull case.

Wed, 08/26/2009 - 09:32 | Link to Comment PragmaticIdealist
PragmaticIdealist's picture

But it's not all about the cap rate, that's only one half of the equation.

What about rents? How can you or the bulls possibly expect strong growth rate in rents when the economy has been overleveraged at an unsustainable level for decades culiminating in massive writedowns and losses of equity and asset values and then unemployment?

 

Any slightly rosy picture of the rents is going to fail miserably absent some sort of stagflationary scenario.

Tue, 08/25/2009 - 22:50 | Link to Comment KeyserSöze
KeyserSöze's picture

Tyler didn't you hear Hanz and Franz from Goldman today...the plan is set...Unlce Ben is going to put CRE refi's and backstops on every piece of shit coming in the maturity window that you are talking about...That would swell the balance sheet for the fed...to 4 trillion....

We have seen Australia, Canada come out and say that they are going to start selling their currencies soon...around 82 and 93 respectively ...look for major FX CB manipulation coming to a trade desk near you....as the USD dollar collapses.....

Wed, 08/26/2009 - 00:22 | Link to Comment texpat
texpat's picture

From watching FXA every day, selling USD will set the equities ball rolling downhill again.

The balls must be getting hard to juggle.

Wed, 08/26/2009 - 06:43 | Link to Comment aus_punter
aus_punter's picture

serious question... when did the RBA say they are going to start selling AUD ?.... I know they have sold some around 83.5 but have seem no mention of anticipated sales

Tue, 08/25/2009 - 22:42 | Link to Comment Gilgamesh
Gilgamesh's picture

Cue RoboTrader posting a pic of the REIT-Retail 3D Heatmap today (over 90% green, half with >3% gains).

 

Over/Under on when/if Moody's downgrades DDR unsecured to non-IG?

Tue, 08/25/2009 - 22:43 | Link to Comment Project Mayhem
Project Mayhem's picture

Look I don't understand what people are complaining about -- China will buy our worthless paper, and send us valuable goods -- goods for us to purchase in massive, vapid, spiritually vacant malls across this great land.  Now let's all say the pledge of allegience together.

Tue, 08/25/2009 - 22:47 | Link to Comment Terminal Frost
Terminal Frost's picture

When do I start teaching my daughter to speak Chinese?

Tue, 08/25/2009 - 23:54 | Link to Comment Ghettomedic
Ghettomedic's picture

She'll learn quickly enough when she's nannying their kids for minimum wage and savings bonds.

Wed, 08/26/2009 - 05:08 | Link to Comment Anonymous
Wed, 08/26/2009 - 00:10 | Link to Comment KevinB
KevinB's picture

Ask Jimmy Rogers...

Tue, 08/25/2009 - 22:49 | Link to Comment crzyhun
crzyhun's picture

Overcapacity, overcapacity, overcapacity.

Tue, 08/25/2009 - 22:53 | Link to Comment deadhead
deadhead's picture

"...the company is finally marking its asset book to something vaguely resembling reality."

This shit better not start happening with our banks, damnit!

Sincerely,

Rahm

 

Tue, 08/25/2009 - 23:03 | Link to Comment Anonymous
Tue, 08/25/2009 - 23:57 | Link to Comment TumblingDice
TumblingDice's picture

Imposter!

Wed, 08/26/2009 - 00:05 | Link to Comment MinnesotaNice
MinnesotaNice's picture

lol

Tue, 08/25/2009 - 22:57 | Link to Comment Anonymous
Tue, 08/25/2009 - 23:04 | Link to Comment Hephasteus
Hephasteus's picture

Understimate your losses to make yourself look more valuable and attractive for as long as possible. Then cover the stench up till it uttery cracks the foundation of business. Coming to every publicly held company in america near you.

Tue, 08/25/2009 - 23:36 | Link to Comment Anonymous
Wed, 08/26/2009 - 13:03 | Link to Comment straightershooter
straightershooter's picture

Care to share the timing of this coming R&R (Riot and Revolution)?

Wed, 08/26/2009 - 13:48 | Link to Comment Argos
Argos's picture

The revolution comes on the same day the television broadcasting goes down for good.  Well, maybe a few weeks after that.  There's a lot of weight loss that is going to have to happen first. J6P is looking a little to hefty for a revolution.

Tue, 08/25/2009 - 23:53 | Link to Comment JohnKing
JohnKing's picture

Secondhand shopping and church bubble on the way:

Many empty storefronts are left behind in the wake of dozens of retailers filing for bankruptcy over the past couple years, Trobaugh said, and different types of tenants are filling the empty retail space. They include churches, libraries, tutoring services, tech schools and secondhand shops.

 

Mall News

Wed, 08/26/2009 - 00:11 | Link to Comment MinnesotaNice
MinnesotaNice's picture

Nice... church in a vacated, money losing mall... nothing more American than that... the plate glass display windows... the abandoned shelving and displays... the traffic worn carpet... I'm feeling more spiritual already... makes me want to get married again just so I can drink in the ambiance.

Wed, 08/26/2009 - 00:48 | Link to Comment Anonymous
Wed, 08/26/2009 - 00:37 | Link to Comment Anonymous
Wed, 08/26/2009 - 00:40 | Link to Comment Gubbmint Cheese
Gubbmint Cheese's picture

REIT's "prepared for their journey and waved goodbye.. and slipped the surly bonds of earth to touch the face of god. "

as with the dot.com era.. reality can be deferred, but it can't be ignored forever.

financial gravity will always endure.

gc

Wed, 08/26/2009 - 01:31 | Link to Comment Spartacus
Spartacus's picture
Redbook: US Retail Sales -0.7% First 3 Wks Aug Vs July

This one appeared on http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=e9c443ed-ba33-4e1b-955e-39a77518446f. on 25th Aug 2009.

Why this was not reported in Bloomberg?

Wed, 08/26/2009 - 01:41 | Link to Comment George the baby...
George the baby crusher's picture

How about a Chinese language schools in the empty malls?

Wed, 08/26/2009 - 01:50 | Link to Comment Project Mayhem
Project Mayhem's picture

haha

Wed, 08/26/2009 - 06:04 | Link to Comment Pizza Delivery Man
Pizza Delivery Man's picture

Any currency traders awake?

It's gona be quite a day :)

Wed, 08/26/2009 - 07:44 | Link to Comment Anonymous
Wed, 08/26/2009 - 06:38 | Link to Comment Anonymous
Wed, 08/26/2009 - 06:40 | Link to Comment Anonymous
Wed, 08/26/2009 - 06:45 | Link to Comment aus_punter
aus_punter's picture

19 bn... big deal....Kevin Rudd and his moronic treasurer will backstop that in a heartbeat....sell protection on Westfield straight away !!!

Wed, 08/26/2009 - 12:08 | Link to Comment Anonymous
Wed, 08/26/2009 - 08:34 | Link to Comment Anonymous
Wed, 08/26/2009 - 08:57 | Link to Comment e1even1
e1even1's picture

went to the local westfield last evening to see QT's new film (one of his 3 best btw. highly recommend).

i estimated the mall occupancy at 70%. the parkling lot was at about 30% and the few people in the anchor Macy's were mostly empty handed. this has been the norm for this westfield for about a year.

Wed, 08/26/2009 - 09:47 | Link to Comment Printfaster
Printfaster's picture

The Fed is extending the cash for clunkers program to include trash.

Wed, 08/26/2009 - 11:53 | Link to Comment jamesjoyce
jamesjoyce's picture

It's pretty laughable that Westfield beleives that mall cap rates in the US are 6.8%. Malls are not trading becuase everyone in that space knows that NOI erosion over the near-term is going to be huge. Also, try and find decent financing for a mall property. I can assure you that it will not be sub-7% and certainly not above 50% LTV. The REIT space has come back way to quickly and if you look at the fundamentals in that space, they are terrible. Retail may be the worst.

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