Westfield/CPPIB Joint Venture Signals Strong Interest in Fortress Malls

The Westfield Group’s sale of a 45 percent stake in its U.S. malls to Canada Pension Plan Investment Board (CPPIB) showcases once again institutional investors’ appetite for core retail assets in the United States. In the year ahead, more and more retail REITs will likely employ the strategy of entering joint ventures on their stabilized assets in order to raise capital for new acquisitions.

On Feb. 15, Sydney-based Westfield announced it was entering a joint venture with CPPIB for the ownership of 12 U.S. properties. CPPIB agreed to pay $1.8 billion in equity, and assume property level debt on the portfolio, which totals 13.5 million sq. ft. and includes some of Westfield’s best performing centers. The malls produce on average $456 per sq. ft. in sales and are 93.4 percent leased.

As of Dec. 31, the long-term yield on the properties averaged 6.29 percent, according to data provided by Westfield. Westfield plans to redeploy the capital from the transaction toward its development pipeline, expansion into Brazil and projects in Milan and New York City.

“What Westfield is doing is taking fully developed, stabilized assets and capitalizing them in order to invest in Brazil, which is a high growth emerging market,” says Donald MacLellan, senior managing partner with Faris Lee Investments, an Irvine, Calif.-based retail advisory and brokerage firm. “These are projects that they basically tapped all the value out of, they are pretty much established. That’s the strategy for REITs: Establish the assets, and then get institutional partners.”

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