Westfield Group

Westfield Group today held its annual general meeting and announced its 1^st quarter update (it has a calendar year end). Management reaffirmed  guidance for full year funds from operations (the company’s preferred performance measure) of 65 cents per security and distributions of 49.5 cents. This places Westfield on a forecast yield of 5.3%.

Critically, the update highlighted improving retail conditions in the US where, despite a slight fall in occupancy to 91.6%, sales and rents rose a pleasing 8.2% and 6.3% respectively from the prior year. The UK similarly experienced sales and rent growth. Westfield’s flagship London centre grew sales 7.1% against retail market growth of only 2.4%. Retail sales growth in Australia was more subdued. Sales rose only 0.2% but rent was still 2.6% higher. There’s yet to be any impact on occupancy with centres remaining practically full. We remain sceptical of the longer term potential for Australian rent growth (see Westfield Pt III: The view from above from 07 Feb 12 (Hold – $8.79)).

Net debt to assets was down to a comfortable 32%, but is likely to rise as the buy-back and planned developments are implemented. Doubts about the efficacy of the announced buy-back linger, and we found Chairman Frank Lowy’s response to questions regarding Westfield's selection of a buy-back over a capital return inadequate. This is, however, only a minor complaint. Westfield continues to demonstrate it is the world’s best retail property developer. Westfield’s future is now focused overseas and, with new developments in Milan, Brazil and the US underway, the company’s long-term prospects are bright. The security price, however, is up slightly since 19 Apr 12 (Hold – $9.17) and remains a touch too expensive for new investors. HOLD.

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