LainieJean wrote:Fashions change, don't they. There was a huge rush for property managers to merge with the trusts they controlled, now there is a trend the other way.

Personally I think separating the trust from the management is good from an investor point of view, as the trusts were always popular with retirees for their steady income and tax deferred amounts. If the two are separated anyone who wants both can buy both the trust and the company in whatever proportion they want.

Westfield Group (ASX:WDC) announced a proposed restructuring to create a new separately listed property trust - the Westfield Retail Trust.The proposal will be effected through a pro-rata distribution of units in the new trust to Westfield Group securityholders equating to a capital distribution of $7.3 billion.
Westfield Retail Trust will become the joint venture partner in 54 of the Westfield Group's shopping centres in Australia and New Zealand.

The Westfield Retail Trust will undertake a $3.5 billion offering of new units to eligible investors, of which $1.75 billion has been underwritten.
The offer comprises:
* A public offer, which seeks to raise gross proceeds of up to $2 billion; and
* A Westfield securityholder offer available to eligible Westfield Group securityholders, which seeks to raise gross proceeds of up to $1.5 billion.

The Trust will have its own separate Board and management team, led by Richard Warburton AO as chairman and Domenic Panaccio as managing director. The Westfield Group will act as the Responsible Entity for which it will not charge fees.

Under the proposal, Westfield Group and Westfield Retail Trust will be separately listed entities, but will maintain a close ongoing relationship.

Westfield Group chairman Frank Lowy AC said the proposal was the latest in a series of capital restructures that Westfield Group has undertaken over its 50-year history. "As the global economies emerge from the recent crisis and we near the completion of a number of major global redevelopments, we are able to restructure, distribute capital to securityholders and remain in a very strong position to pursue our global growth opportunities," Mr Lowy said. "The new trust will provide existing Westfield Group securityholders, as well as new investors, the opportunity to invest in the pre-eminent retail property portfolio in Australia and New Zealand. It responds directly to significant market demand for a domestic trust focused on investing in high quality retail real estate, with conservative gearing and income sourced primarily in Australian dollars," he said.

The demerger has taken place but another problem looms; shareholders that have sold (or intend on selling this financial year) their Westfield Group securities since the demerger have to account for it in their tax return for this financial year, which is about to end.

The company’s downloadable example, designed to help you calculate what’s known as the cost base of your shares (what you paid for them) is confusing. Instead, we’ve provided a simpler and more useful version that you can download (above or from their website).
Before explaining how it works, and the history that makes it necessary, a caveat: This is a complex and confusing area of taxation law. You may well need professional tax advice, especially if you purchased securities prior to the 2004 merger.

Before 2004 there were three separately listed Westfield stocks; Westfield Holdings housed the property development arm, Westfield Trust owned Australasia’s premier retail property portfolio (50% of which now belongs to Westfield Retail Trust) and Westfield America Trust owned the US property portfolio.

These entities are still separate. Your Westfield Group security represents a stake in each of these businesses, joined together to form one convenient security—hence the term ‘stapled security’ .

But what you really need to know is that the recent demerger only affects Westfield Trust, not your stake in Westfield Holdings or Westfield America Trust. Your first task then is to spread your original purchase cost over the three entities. Using the company’s guidance, we’ll use net tangible assets (NTA) as our basis (there may be alternatives but this is the simplest and most relevant).
In Table 1 in the spreadsheet cells highlighted yellow (E2 and E3), input your original Westfield Group purchase date and purchase price respectively.

In cell E4, input the Westfield reporting date prior to your purchase date (you can see the options in Table 7 at the foot of the spreadsheet). The purchase date in our example is 19 Sep 2008, so the prior reporting date is 30 June 2008.

In Table 2, you’ll notice your purchase cost has automatically been divided between the three Westfield entities based on each entity’s NTA value laid out in Table 7 (you’ll also find the figures on the Westfield website at the bottom of the page).

In Table 3, we now need to reduce the value of the original Westfield Trust by the NTA value ascribed to the new listed stock Westfield Retail Trust (be careful not to confuse the two entities).

Westfield’s guidance says that 59% of the original value of Westfield Trust ($11.75 in our example) should stay where it is (11.75 x .59 = $6.93). The remaining $4.82 (11.75 – 6.93) belongs to Westfield Retail Trust, as you can see in Table 4.

Tax-deferred distributions

If you add up the total value in Table 3 and 4, it should equal your original purchase price (in our example, 13.18 + 4.82 equals $18.00). That wasn’t so bad was it? If Westfield didn’t pay tax-deferred distributions, it would be quite straightforward.

So now we have to reduce the cost base by any deferred-tax distributions that we’ve received in the cells highlighted in yellow, F23 and F24.

You don’t need to trawl through the dusty boxes in your garage to uncover your past distribution statements—we’ve listed the figures on the right hand side of the spreadsheet.

You can download the full distribution history for Westfield Trust and Westfield America Trust on the Westfield shareholder website. While you can also download the history for Westfield Holdings, it doesn’t pay deferred-tax distributions.

In cells F23 and F24 we have added up the deferred-tax distributions paid since our purchase date (for Westfield Trust there are three payments: 17.52 cents, plus two payments of 18.05 cents, as you can see in the abovementioned list).

For Westfield Trust we have also multiplied the total of the distributions by 59%. Although it’s not made explicitly clear, the remaining 41% needs to be allocated to Westfield Retail Trust. You need to do this in cell F28 (Table 6).

Please note that your purchase price cannot fall below zero, even if it’s exceeded by the total of your deferred-tax distributions. A nil purchase price for Westfield Trust also means a nil purchase price for Westfield Retail Trust.

Capital loss: After accounting for tax-deferred distributions, the purchase price for Westfield Group in our example falls from $13.18 to $12.39. For Westfield Retail Trust $4.82 falls to $4.60. In this example the securityholder would realise a capital loss if they sold either of the securities on market at current prices.

Our spreadsheet is mainly designed for securityholders who purchased Westfield Group after the 2004 merger. For purchases before this, the additional complexities might require a trip to your accountant if the original 2004 merger document (particularly Appendix A on page 241) isn’t useful. As always, if you’re unsure of your situation seek advice from a tax professional.