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Centro would be thinking about Lowy's comments

SHOPPING centre giant Westfield Group has delayed plans to sell more than $700 million worth of property in the wake of the sub-prime credit crisis.

Steven Lowy, joint managing director of Westfield, in his Sydney office. Picture: Bob Finlayson
The world's biggest owner and manager of shopping centres will not sell the remaining third of its pound stg. 530 million ($1.2 billion) British wholesale shopping centre fund, at least until the market stabilises.

It has also pulled New Zealand centres Pakuranga and Glenfield, worth more than $300 million, off the market.

Westfield, which owns or manages 120 shopping centres worth $63 billion, is believed to have discussed selling the Auckland centres to LaSalle Investment Management/Prudential's Asia Property Fund, which in August paid $738 million for a half-share in Westfield's Doncaster project in Melbourne.

In a wide-ranging interview with The Australian, Westfield managing director Steven Lowy said rising interest rates in New Zealand and the difficulty potential buyers faced in getting credit had prompted the decision to put the sale of the Auckland centres on hold. "It's probably not the best time to sell something and, given that we're not a forced seller, we decided we will take it off the market and deal with it at another time," Mr Lowy said.

He said the sales were "very much at the margin" for Westfield - which has already raised $7 billion in the last 12 months to strengthen its balance sheet and pursue its aggressive $10 billion development program.

The giant retail landlord has recently been thought of as a buyer rather than a seller, following last week's meltdown of Australia's second-biggest and the US's fifth-biggest shopping centre owner, Centro Properties Group.

Centro will be a forced seller and Westfield knows the company well, having sold over $US500 million worth of US shopping centres to Centro last year. Mr Lowy would not comment on Centro specifically. But he said that while development was the main game for Westfield, it was also opportunistic.

"We're not that fussed about short-term economic fluctuations - in fact, that can create opportunities," he said.

"Our company has grown because we have a very strong, sound business model and a very conservative balance sheet that provides the opportunities when others are stumbling."

Centro's woes hit the entire stock market, including Westfield, which saw $1.86 billion wiped off its market value on Monday last week - the day Centro said it had been unable to renegotiate $1.3 billion in short-term loans because of the global credit crisis.

"We're not coming from the position that we are immune- not at all," Mr Lowy said.

"Are we well placed to buffer volatility better than any of our peers? The answer to that is 'absolutely yes', but are we immune from that? No."

Mr Lowy said a year ago Westfield already believed that risk was no longer being priced into the market.

"There wasn't enough discernible return expectations from high-quality assets and lesser-quality assets, and all that does is push the pricing of lower-quality assets closer to better-quality assets.

"And we're not prepared to play in that game," Mr Lowy said.

"A lot of purchases took place and a lot of people were wondering why Westfield didn't buy anything in the US at that time. Well, I don't think they are wondering that now."

Centro, which controls $26.6 billion worth of mostly smaller neighbourhood shopping centres, went on a spending spree when debt was cheap, culminating in a top-of-the-market $US3.7 billion acquisition of US shopping centre owner New Plan Excel in February.

Mr Lowy said one advantage of the economic growth years had been the increasing profitability of retailers, providing them with a buffer in tighter times.

Over those years, the cost of goods to retailers fell as a result of cheaper imports from India and China, he said.

"We haven't seen retailer bankruptcy blow out or our vacancies blow out. We've seen a slowing in growth of retail sales since the sub-prime issues came about," Mr Lowy said.

"We fundamentally have a bullish view, long-term, of Australia, the UK and the US.

"We've been around a long time. You need to look at Westfield in terms of 47 years as a public company.

"This is not the first credit crunch, it's not the first volatile market environment that we've been in, and we're in business for the longer term."

Mr Lowy said Westfield's business model hinged on its development program rather than needing to buy assets to grow. He said the group would spend about $16 billion on development over the next five to seven years.

Westfield's biggest projects include the pound stg. 1.6 billion Westfield London at White City, Stratford (alongside the 2012 Olympics), while in Australia it plans to start work next year on the $600 million makeover of Centrepoint Sydney's Pitt Street Mall. Even if the value of shopping centres dropped, Mr Lowy said there would still be better returns in developing than buying.

"If you are starting on an 8-10 per cent yield, then that is going to be better than anything you will be able to buy," he said, noting the group sought internal rates of return of 12-15 per cent.

Mr Lowy said he was yet to see evidence that yields for high-quality assets had pushed out, though it was to be expected.

"But it's really the opinion of valuers - it's not necessarily what people are prepared to pay or not pay."

Of future market conditions, Mr Lowy says: "Clearly, after the Centro announcement, it will become more difficult to refinance short-term debt and long-term debt, depending on conditions.

"When there is euphoria in the market, as there has been until this year, stocks like ours are looked at as too conservative.

"I don't think anybody says we are too conservative today."