Research Paper on "Westfield Group"

Research Paper 20 pages (5997 words) Sources: 10 Style: APA

[EXCERPT] . . . .

Westfield Group is one of the world's largest developers and managers of retail property. They operate 119 malls in Australia, the United States, New Zealand and the United Kingdom. The group is solid financially and has a strong, experienced management team. They have been able to leverage these strengths in part by sticking to their core business.

This has resulted in a finely-tuned organization, but also one that lacks in diversification.

Westfield is liquid, but has seen a decrease in revenues and profits in the past couple of years, in part due to economic slowdown. The firm is partly insulated from this by virtue of their strength in the Australian market, but their lack of diversification continues to put them at risk. The firm's tactics and objectives appear to be relatively congruous. However, despite placing an emphasis on the development of human resources, the company is essentially family-run, which is a deterrent to top talent. Also, despite the importance of the U.S. market to Westfield, they have only one American on their Board, indicating a lack of knowledge in the U.S. market at the top of the company.

Despite the global economic slowdown, Westfield has several opportunities for growth. However, the company's risk aversion means that it would require a leap of faith for them to move aggressively into the Asia Pacific market or to expand rapidly in the U.S. And UK via acquisition. More likely, the best option for the firm, given their internal capabilities, is to stay the course. This will help them to weather the current economic storm, and allow them to retool over the next couple of years to better take advantage of opportunities when the global economy heats up again.

Background

The Westfield Property Group is one of the world's largest retail property management firms. The company's primary business is the operation of shopping malls. The Sydney-based company is listed on the Australian Stock Exchange and has a market cap of AU$25 billion. The company operates a total of 119 shopping centers in Australia, New Zealand, the United Kingdom and the United States. All told, the company manages a portfolio of over 10 million square meters of retail space worth $63 billion. In 2007, Westfield turned a profit of $3.4 billion on revenues of $5.9 billion.

The Westfield Group began in 1956 when two immigrants, John Saunders and Frank Lowy, set up a retail development in the Sydney suburb of Blacktown. The two had operated a delicatessen, a coffee lounge and a small property venture to that point, but had seen the potential of a larger-scale retail operation in the area. At the time, shopping malls were unknown in Australia. The trend was nascent in the United States, and the first two shopping centers arrived in Australia in 1957. In July, 1959, the first Westfield shopping center opened in Blacktown. Within weeks of opening the center, offers for partnerships and joint venture came pouring in. The partners took up some of these offers and began to develop multiple properties in the Sydney area. By 1960, the duo took Westfield Properties public.

From that point, the company experienced slow but steady growth, opening properties in major cities and suburbs across Australia. Their first big move overseas came in 1977, when they opened a mall in Connecticut. The company experienced strong U.S. growth in the 1980s. The 1990s saw further expansion, to New Zealand and the United Kingdom, and the company began to take the form in which it exists today. The company bought into the Mall at the World Trade Center in 2001, only a few weeks before the terrorist attacks, and would eventually sell their interest in the property a couple of years later, only to re-buy into the project in 2008. A wide variety of transactions in the past eight years has significantly increased the size of Westfield's real estate portfolio to its current state. In 2004, the current incarnation of the Westfield Group was formed, when subsidiaries Westfield Holdings, Westfield Trust and Westfield America were merged into a single group.

Currently, Westfield's 119 properties are divided as 55 in the United States (5.8 million square meters); 44 in Australia (3.5 million square meters); 12 in New Zealand (0.4 million square meters); and 8 in the United Kingdom (0.4 million square meters). These properties have a total of 22, 763 retail outlets and are worth a total of a$62.2 billion. The company is the largest retail property manager in the world by market cap. The company's competitors include British Land in the UK and Centro in Australia. In the United States, competitors include Simon Property Group, General Growth Properties, Voronado Realty and Macerich.

As a vertically integrated company, Westfield has three main business activities, all pertaining to their shopping centers. The first is Property Management, which comprises mainly of the marketing and leasing of retail space in their centers. Key elements of this activity include the retailer mix, creating a positive shopping experience and fostering an environment that encourages shopping. This part of the business drives most of the year-over-year revenues. As with any retailer, the key measure for this part of the business is same-property sales, that is, the incremental growth in sales from the same property one year to the next.

The second main business activity is Property Development. This involves the design and development of new shopping centers. Westfield also arranges the construction and leasing of key anchor stores under this activity. The anchor tenants are dealt with in this activity because their presence mitigates the risk inherent in the construction of new shopping centers. Construction does not commence until anchor tenants are in place. Some of the key anchor tenants used by Westfield include Wal-Mart, JC Penney, Coles, Woolworths and cinema operators.

The third main business activity is Fund/Asset Management. Westfield has expanded its activities to provide asset management services. The market for these consists of institutional investors and other investors of equivalent size and sophistication. Some of these investments are undertaken as joint ventures with other large investment firms, or in limited partnership arrangements.

Westfield's organizational structure is broken down geographically. There is a main Global unit and four regional units. This structure supports the company well because Westfield operates mainly in one business, and each geographical unit can deal better with issues pertaining to that nation. The senior executive team is experienced, with an average age of 49 years and an average tenure with Westfield of 13 years.

The Board of Governors for Westfield Property Group is headed by the Chairman Frank P. Lowy, one of the two founders of the company. Three of his sons are also on the Board, including the two Group Managing Directors Steven Lowy and Peter Lowy. In total, the Board's composition includes four executives (three of them Lowys), and nine non-executives. Ten Board members are from Australia, two from the United Kingdom and one from the United States. The experience of the Board members reflects the disciplines important in the property management business. Five come from a law background, five from a finance or economics background, two are Lowy family members with the real estate background and one has a different background.

In 2007, the Westfield Group saw a significant reduction in its revenues and profits. The cost of revenue continued to increase even as revenues decreased. The Group has continued to make investments to grow the company despite the challenging environment. In 2008, the environment has become even more challenging, both in terms of slumping consumer demand due to weakened global economies, but also in terms of a credit crunch that has limited investment opportunities and the willingness of retailers to expand their operations.

The company lacks a strong sense of mission or vision. Their mission, as outlined on their website, is "to deliver investors steady returns and solid long-term capital growth...within a framework that attempts to balance economic, social and environmental issues." These are, of course, the basic strategic objectives of any corporation, as outlined by Milton Friedman. It can be inferred from this not that the company has no clear vision of its future self, but that the vision is essentially a larger version of the current company. Westfield appears to have placed some priority on developing more community, social and environmental aspects to their operations, but these are ancillary to the core strategy of developing and operating shopping centers. Ideally, the company would have more clarity in terms of its strategic objectives regarding market share, revenues, market position, and other broad variables. Without such clarity, the company has a sense of direction but no particular focus.

The Westfield Group is well-positioned as one of the only international retail property management firms. They have considerable room for growth, and a strong track record of generating positive returns for their shareholders. The company is well-insulated against economic fluctuations because of the structure of their leases. They are continuing to develop new projects, and are expected to launch two new projects… READ MORE

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