WFD Westfieldc Stapled

   By Rebecca Thurlow 
 

Westfield Corp. (WFD.AU) is considering residential developments from London to New York as it looks to supplement income from its growing empire of shopping malls by taking advantage of rising demand for rental apartments in the U.K and the U.S.

The group is revisiting a strategy used by founder and chairman Frank Lowy in the 1960s, when he built housing estates in Sydney's sleepy western suburbs as well as the lucrative shopping centers that would later become the company's sole business.

After receiving approval to build 2,500 apartments at two London malls, Westfield said it is also considering similar residential developments at some of its other shopping centers in the U.K. and the U.S.

"This examination is going on right now," said Westfield's joint chief executive Steven Lowy, Frank's son, in an interview. "Many of our malls have additional land and much of that land is in great markets that have the ability for this to occur. So we are certainly gearing up faster in the U.K. but we can certainly share that the potential is equal or greater in the U.S."

Earlier Wednesday, Westfield reported a 4.2% rise in first-half operating income as an improving economy in the U.S. helped attract shoppers to its malls there, boosting sales and allowing it to increase shop rents.

Westfield said it plans to spend US$2.5 billion on mall developments in the U.K. and U.S. this year after spinning off its Australian and New Zealand malls into a separate company called Scentre Group just over a year ago.

The company exited its older, Australian assets to concentrate on glitzy new developments such as the new World Trade Center mall in New York that promise higher returns for investors.

As well as an existing portfolio of 40 mainly U.S. malls, it has an US$11.4 billion pipeline of current and future developments, with projects under construction including the Village of Topanga in Los Angeles, and an expansion at Valley Fair in Silicon Valley.

Earlier in 2015, it began work on its Century City mall in Los Angeles and UTC in San Diego, with the expansion at Westfield London expected to begin later this year.

Westfield hasn't yet revealed whether it will bring in a joint-venture partner to help fund the apartments at its Westfield London development and its existing Stratford City mall. Mr. Lowy said the company is working on how to extract long-term value for shareholders from the units.

"We haven't decided how we will do it. We are in the process of examining it very thoroughly," he said.

Mr. Lowy said the company is looking to take advantage of a "very serious under-supply" of apartments in London as the areas around the two malls experience "massive regeneration." Stratford has benefited from development associated with the 2012 Olympics for which it was a major transport hub.

Demand for rental apartments is rising in the U.K. where, like in the U.S., homeownership rates are falling as housing affordability shrinks. U.K. homeownership peaked at 69% in 2001 and has fallen ever since, according to a July report from the British Property Federation and U.K. law firm Addleshaw Goddard LLP.

"London is particularly strong, stronger than any other market in the U.K., probably stronger than any other market in Europe, and our focus in the U.S., being California, the Washington area, New York, New Jersey area, Seattle, these are particularly strong markets in the U.S. that we are investing," said Mr. Lowy.

Recent data shows the U.S. housing market is firming as consumer confidence there grows after nearly five years of steady job creation. New-home sales picked up the pace in July, rising 21% from a year earlier.

Write to Rebecca Thurlow at rebecca.thurlow@wsj.com

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(END) Dow Jones Newswires

August 26, 2015 04:45 ET (08:45 GMT)

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