Westfield buys into South Florida
February, 08, 2008
An Australian mall owner has expanded its portfolio by snapping up two South Florida shopping centers, apparently betting efficiencies associated with its clustering strategy and its willingness to invest in upgrades will offset difficulties in the retail climate.
Westfield Group paid SPG-FCM $400 million in November for Broward Mall in Plantation and Westland Mall in Hialeah. SPG-FCM, a joint venture between Simon Property Group, Inc. and Farallon Capital Management, had acquired the malls in March 2007 from Mills Corp. for $1.64 billion.
Westfield holds a portfolio worth more than $53 billion comprised of 119 shopping centers in Australia, New Zealand, the United Kingdom and the U.S., where it has 57 retail properties in 13 states.
The two single-level, enclosed malls in South Florida expand Westfield's presence in the state, where it owns five other shopping centers in Hillsborough, Pinellas and Sarasota counties.
The acquisitions fit with Westfield's clustering strategy to expand into higher-spending markets where the company already has a presence, said Peter Lowy, managing director for Westfield's U.S. headquarters in Los Angeles.
The 1-million-square-foot, sprawling Broward Mall is a popular upscale center that opened in 1978. Anchored by Dillard's, JCPenney, Macy's and Sears, the center also includes 125 specialty shops and is 89.4 percent leased.
The 820,000-square-foot Westland Mall opened in 1971 and is 85 percent leased. Anchored by JCPenney, Macy's and Sears, the center includes 96 specialty stores.
Both shopping centers average sales of $460 per square foot.
"Broward and Westland are both mature malls with extraordinary high leases and good revenue streams," said Cynthia Cohen, president of Miami-based Strategic Mindshare, a national retail consultancy. Cohen said her firm does not work with Westfield Group.
"Westfield is a knowledgeable mall operator," she said. "The challenge will be to sign new leases and be able to market the mall in a way that appeals to consumers."
That could be a challenge in Florida's economy, which has taken a beating of late as home sales plunged 30 percent to 8,106 while the median price dipped 10 percent to $215,800 in November compared to one year earlier.
The state ranked second in the U.S. for the highest number of foreclosures at 29,238 in November, up 212 percent from the previous year. It lags behind Nevada, which has held the number one spot for 11 consecutive months, according to RealtyTrac Monthly U.S. Foreclosure Market Report.
Although weaker than expected sales reports for the U.S. retail sector could force merchants to slash inventory, reduce store personnel hours or shutter altogether, Cohen believes healthy retailers in South Florida — where international tourism remains strong — should have little to worry about in 2008.
"It is tough right now for everyone," Cohen said. "But that just means they are being careful with the expense dollars and probably negotiating harder on deals."
Westfield is known for spending millions of dollars converting its acquisitions into lifestyle centers — retail and entertainment destinations that combine trendy shops and family-friendly services such as movie theaters, restaurants and children's play areas.
The company just completed a $160 million overhaul Westfield Annapolis in Maryland by expanding the mall to 1.5 million square feet and adding new specialty stores, an upgraded food court and a children's play area.
The retail owner also finished a $50 million expansion & renovation project at Westfield Sarasota Square Mall that added a family lounge room, a 12-screen movie theater, new food court with 10 new eateries and 25,000 square feet of additional store space.
Company officials were tightlipped about any plans to renovate Broward or Westland in the near future. The mall owner said it would definitely add family lounge rooms and children's play areas to the shopping centers.
Cohen said the company would probably spend its time listening to mall management this year to gain a better understanding of what local consumers want.
Cohen believes the centers, which tend to appeal to a younger, more diverse crowd with money, could benefit by adding doctor's offices, dental and eye clinics and other businesses typically located away from traditional malls.
"This is the overall direction regional malls are heading," she said. "Mall owners today are adding more restaurants, theaters, doctor's offices and clinics to help them dominate and succeed in retailing."
The company's stock was trading at $18.66 per share during the second week of January, down $4.83 from its $23.49 high last February. Westfield's stock dipped to its lowest at $18.15 in August.
Westfield, which reported that its earnings during the first half of 2007 jumped 7.4 percent from the previous year to $844 million, said it would continue to seek growth through acquisition. As part of a strategic move to free up cash for those acquisitions, the company recently shed four of its malls in St. Louis in a complex deal for $1 billion.
Westfield specifically seeks malls located in prime trade areas that have long-term redevelopment potential and strong anchor tenancies with giant retailers, specialty shops and national chain stores.