Westfield's Brazilian bet

WESTFIELD Group has shown there is still money in bricks-and-mortar retailing by investing in Brazil, the seventh-largest economy in the world.

By InvestSMART · 11 Aug 2011

By InvestSMART ·
11 Aug 2011

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WESTFIELD Group has shown there is still money in bricks-and-mortar retailing by investing in Brazil, the seventh-largest economy in the world.

Westfield's joint managing director, Steven Lowy, said yesterday it was a "historic" day for the group.

"We cannot control markets or trading conditions, but we can put product on the ground that has longevity," he said.

It will be only the fifth new market the retail group has entered since its founding 51 years ago. Westfield moved into Britain in 2000 and next month it opens the second-largest centre in Europe at Stratford, the site of the London 2012 Olympic village.

For the relatively small sum of $440 million, the group has bought a 50 per cent stake in the private Almeida Junior Shopping Centre, which has five centres across southern Brazil, including two being built.

As part of the deal, $250 million will be used to retire the Brazilian group's debt, with the remainder going to redevelopment and expansion.

It will be funded internally by Westfield.

Simon Wheatley, Goldman Sachs's executive director for real estate investment research, said the deal was a better new-market shift than an entry into Asia or Europe.

"The earnings and valuation impact is negligible, but it does offer Westfield a near-term path of growth against the maturity of Australia and UK operations and the weak development outlook prevailing in the US," he said.

Westfield, which went ex-dividend yesterday, shed 6?, or 7.1 per cent, to close at $7.73.

Diversified property group Stockland says its focus on the retail, residential and retirement sectors will stand it in good stead to return stable earnings in the coming year.

In the past year, earnings per security were up 8.6 per cent, with the group saying it expected this level to be maintained, subject to economic factors.

In the year to June 30, the group reported a statutory profit of $754.6 million, up 57.7 per cent on the same time last year.

But after adjusting for property revaluations and asset sales, the net profit, which market analysts refer to, was $752.4 million, up 8.7 per cent, in line with expectations.

Distribution was also up 8.6 per cent to 23.7? and will be paid on August 31.

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Frequently Asked Questions about this Article…

What exactly did Westfield buy in Brazil and how much did it pay?

Westfield bought a 50% stake in the private Almeida Junior shopping-centre group for US$440 million. The Almeida Junior portfolio includes five centres across southern Brazil, with two currently being built.

How will Westfield fund its Brazil acquisition and how will the money be used?

Westfield is funding the US$440 million deal internally. About US$250 million will be used to retire the Brazilian group's debt, and the remainder will be directed to redevelopment and expansion of the centres.

Why is Westfield investing in Brazil — what’s the strategic case for this move?

Westfield sees Brazil, the world’s seventh-largest economy, as a near-term growth opportunity amid mature Australian and UK operations and a weak US development outlook. Goldman Sachs’ Simon Wheatley said the deal offers Westfield a path to growth, while Westfield’s management highlighted the value of putting long‑lasting retail product on the ground.

Did Westfield’s share price react to the Brazil deal?

Yes. Around the time the deal was announced Westfield went ex-dividend and its shares fell about 7.1%, closing at $47.73.

How important is this expansion for Westfield historically?

This marks only the fifth new market Westfield has entered since it was founded 51 years ago. The group previously moved into Britain in 2000 and is due to open the second-largest centre in Europe at Stratford next month (the site of the London 2012 Olympic village).

What is Almeida Junior and what assets does it own?

Almeida Junior is a private Brazilian shopping-centre group with five centres in southern Brazil. Two of those centres are currently under construction, and the group will partner with Westfield following the 50% stake sale.

What did Goldman Sachs say about Westfield’s entry into Brazil?

Simon Wheatley, Goldman Sachs’ executive director for real estate investment research, said the Brazil deal was a better new-market shift than entry into Asia or Europe. He also noted the earnings and valuation impact would be negligible, while offering Westfield a near-term growth path.

What recent results did diversified property group Stockland report and why might investors care?

Stockland said its focus on retail, residential and retirement should support stable earnings. Over the past year earnings per security rose 8.6% and the group expects to maintain that level subject to economic factors. Statutory profit for the year to June 30 was $754.6 million (up 57.7%), and adjusted net profit was $752.4 million (up 8.7%). Distribution was up 8.6% to 23.7 and will be paid on August 31.