Westfield Group

Westfield Group has announced a string of changes after producing a full-year (Westfield has a calendar year end) underlying profit of 64.8 cents per security (using the company’s preferred measure of profitability ‘funds from operations’) in line with previous guidance. It was a respectable result, but comparisons were made difficult by the Westfield Retail Trust demerger. A final 24.2-cent unfranked distribution was also declared (ex date already passed), bringing the annual total to 48.4 cents. Westfield currently trades on a 5.5% yield.

Despite weakening retail conditions, there’s barely a vacant store in Australia. Retail sales within Westfield’s Australian shopping centres increased 1.5%. Though the US occupancy rate fell slightly to 93.1%, it has increased from 92.8% in 2009. Retail sales in Westfield’s US centres also increased 7.1%, with new leases incorporating an average 11% rent increase. Sales in Westfield's flagship London shopping centre increased 10.8%.

The Canada Pension Plan Investment Board has also agreed to purchase a 45% stake in 12 Westfield shopping centres in the US for around US$1.9bn. That’s slightly above book value. Westfield will also earn management fees as it has retained the management rights to the joint venture. As Westfield has a $11bn pipeline of developments to complete over the next decade, selling smaller and lower quality shopping centres is a sensible move. Westfield also sold three small UK properties for £159m.

Given the pressure by large investors to increase return on equity, the company also announced that it will repurchase up to 10% of the company’s securities on-market. We think it’s unlikely that Westfield will buy back that many securities, but as the company is not grossly undervalued we would prefer the money was spent on new developments or reducing debt. The security price has barely moved since Westfield Pt III: The view from above from 07 Feb 12 (Hold – $8.79) and remains a HOLD.

Note: The model Income and Growth portfolios owns securities in Westfield Group.

Note: The original version of this brief mentioned Westfield Stratford instead of Westfield London.