Westfield Group's core business is the management of shopping centres and it is only indirectly exposed to the ebb and flow of retail sales.
The big property company has most of its assets in the US, Australia and New Zealand, with about 10 per cent in Britain. The key to its success is ensuring each property is as fully leased as possible.
The long-term outlook for consumer activity in these regions is therefore an important consideration for the group's outlook.
In the US, the country's economic recovery obviously ran into something of a quagmire in 2011. But there is tentative evidence that this year the recovery will begin to take hold in more confident fashion. The consumer is key to this for the US, accounting for about two-thirds of the country's gross domestic product.
Retail sales in the country were up about 3 per cent to 4 per cent in 2011, compared with 2010. The important holiday shopping season began well in November, with buoyant trading on "Black Friday" continuing into Christmas. Consumer confidence has also rebounded.
In Australia, the retail sector has been surprisingly weak given the country's comparative economic health. This is due partly to the two-speed economy but also a function of the Reserve Bank of Australia's initial reluctance to adopt looser monetary policy.
The vast majority of Westfield's revenue comes from rental income, of which about 98 per cent is fixed for the term of the lease agreement. In the year to December 2010, for example, only 1.7 per cent of the group's income was directly linked to retailers' sales.
The lack of direct exposure to this ensures Westfield is buffered from periods of weakness in the retail sector.
A little more than 10 per cent of the group's lease agreements are set to expire next year, with about 7.8 per cent expiring annually through to 2015.
In this sense, the prospect of an improved retail environment in the longer term in Australia and the US is positive for Westfield.
Management recently reaffirmed full-year guidance for funds from operations of between 64? and 65? a security. Westfield's total distributions for 2011 will be 48.4?. This equates to a distribution yield of about 5.8 per cent, or more than 8 per cent on a grossed-up basis. Westfield Group looks undervalued at $8.47 a share and we see limited downside risks, an attractive income stream and potentially 20 per cent valuation upside during the next 12 months to 18 months.