Malls

ELIZABETH HAYES Staff Reporter So what company is the largest owner of shopping malls in the San Fernando Valley area? TrizecHahn? Macerich? Alexander Haagen? Try Westfield America Inc., an increasingly influential Brentwood-based company with strong roots in Australia some say a little too strong. The publicly traded real estate investment trust already owns 10 California malls five in San Diego and five in Los Angeles County including Topanga Plaza aand The Promenade in Woodland Hills, as well as Eagle Rock Plaza. Later this year it will add three more L.A. malls once its $1.44 billion acquisition of TrizecHahn’s portfolio is completed. Nationwide, Westfield owns 25 retail centers and will add 13 more from its acquisition from TrizecHahn. The focus of the company, said Co-President Richard Green, is to acquire underperforming malls, then redevelop and expand them. “We like to find well-located property we can improve,” Green said. Once the TrizecHahn acquisition closes, Westfield plans to spend about $1 billion on improvements to its malls over the next five years. The company also may look to make additional acquisitions, but probably not any time soon. “Our task at hand is to take on the TrizecHahn portfolio, get that going, and when we pop our head up, we’ll decide,” said Green. “There may be a couple of opportunities we’ll take advantage of.” He cited the Westside Pavilion as illustrative of the company’s approach. The prominent West L.A. mall was little more than a strip center when Westfield bought it in 1982. The company knocked down that original center and built the enclosed mall, which opened in 1985. It then undertook a major expansion in 1989, extending it across Westwood Boulevard. Westfield sold the center two years ago after improving the vacancy rate to the “high 90 percent” range. Green also cited Topanga Plaza, which the company bought, renovated and expanded. It now ranks among the top 10 shopping centers in Southern California, in terms of sales volume. In West Covina, Westfield last year converted the Eastland Shopping Center from an enclosed and nearly vacant mall to a power center, with retailers that include Target, Burlington Coat Factory, Marshalls and Old Navy. It also moved the Robinsons-May store to The Plaza at West Covina a mile away. Westfield is still looking to beef up its smaller Eagle Rock Plaza, possibly adding big-box stores or a supermarket. “Our job is to take advantage of the demographics of the area,” Green said, pointing out that the directories of stores are in Spanish and English. Meanwhile, Westfield is evaluating each property in its pending TrizecHahn purchase, which includes the Santa Anita Fashion Park, Los Cerritos Center and Fox Hills Mall in Culver City. It’s also analyzing how to improve The Promenade, which is not far from Topanga Plaza in Woodland Hills. The Promenade is only about 40 percent occupied, Green said. Owning more than one mall in a given area carries certain competitive advantages for advertising and marketing, making possible citywide promotions. Eventually, the company might even rename its malls with the “Westfield Shoppingtown” brand name. Westfield America is closely tied to Westfield Holdings Ltd., an Australian company that has been in the mall business for the past 35 years. That company was co-founded by Frank Lowy, who also is chairman of Westfield America. Lowy’s sons David and Peter also are directors of Westfield America. Westfield Holdings made its first U.S. acquisition in 1977 in Connecticut. It acquired half a dozen more before suddenly tripling the size of its U.S. portfolio in 1994 with the purchase of a 40 percent interest in CenterMark Properties, which had 19 shopping centers. Two years later, Westfield Holdings bought the other 60 percent of CenterMark, and then in May 1997, it spun off those U.S. mall holdings into a separate real estate investment trust, Westfield America. When Westfield America went public in 1997, raising $300 million, some analysts were critical of the unusually close ties with Westfield Holdings. Shortly after its IPO, Westfield America made a $145 million loan to Westfield Holdings secured by a regional mall in Paramus, N.J. Analyst Jon Fosheim of Green Street Advisors in Newport Beach called the loan “brazen self-dealing.” Fosheim and others also criticized Westfield America’s decision to “hire” a subsidiary of Westfield Holdings as an outside property manager and advisor and pay the subsidiary management and development fees. Fosheim said the fees paid to Westfield Holdings appeared high and “not aligned with shareholder interests.” “There are powerful incentives to grow the company solely for growth’s sake and very little in the way of protections to keep the advisor in check,” he wrote in a 1997 report. Fosheim said last week he still has reservations about Westfield. The conflicts are still dramatic and in the long run, shareholders will get a bad deal, he said. Green attributed the criticism to a “lack of understanding on how we operate around the world.” He said the outside advisor system is common in Australia, while U.S. REITs tend to be internally managed. He said the company is subject to public scrutiny and an independent board. The fee paid to the advisor is “very market” and tied to incentives, he said. “We have to have incredible results,” he said. William Acheson, a senior analyst at Smith Barney in New York, said Westfield America’s performance has been “generally good,” with its stock trading at $18.25 per share last week, up from its initial offering price of $15. Westfield America’s net income more than doubled from $22 million in 1995 to $47 million last year. Its sales per square foot also rose in that period, from $279 to $310. “They’re very smart managers and high-quality properties,” said Acheson. “I like the redevelopment story. That’s what they specialize in. It’s a great way to make money.” He said the advisor fees are “not dramatically more” than the industry norm for general-and-administrative expenses, but he said that kind of structure is not optimal because it does carry a perception of self-dealing.