Intersuisse update just out:Westfield Group WDC Monday 1...

Intersuisse update just out:

Westfield Group WDC Monday 1 September 2008

Reassuring half-year results - Cream rises to the top

Recommendation: Accumulate

Investment Rationale
WDC is a major global retail property group established by the merger of
Westfield Holdings, Westfield Trust and Westfield America Trust in July 2004.
The gross value of investments under management exceeds $63bn. The
passive investment assets of the trusts will generate about 80% of group net
income (excluding revaluations). A portfolio of this size generates significant
redevelopment work captive to the group, a focus in which WDC excels and
generates strong growth. Management is very high calibre with an impressive
track record. WDC is recommended for long term portfolios at the right price.
Event
 Westfield Group (WDC) has announced results for the half-year ending 30
June 2008 with the income statement stronger than expected but the
balance sheet unexpectedly weaker.
 Revenue tracking above expectations and expenses tracking below lead
to net profit tracking higher. Comparable shopping centre net operating
income growth was 3.2% globally. Strong growth of 4.8% in Australia and
New Zealand was offset by weak growth of 1.0% US and 0.3% UK.
 Portfolio metrics remain strong at 97.3% occupancy (97.5% December
2007) with comparable retail sales growth up 4.9% in Australia and 0.4%
UK but down 1.9% USA and 0.2% New Zealand.
 Net asset backing was unexpectedly reduced to $14.06 per security
($14.25 December 2007). Capitalisation rates were 10bps higher in New
Zealand and USA with a steep 30bps increase in UK. Australian rates
were stable at 5.5%, helping to offset declines.
 Gearing is now 32.9% (31.7% December 2007) with interest cover 3.0x
(2.9x December 2007).
 Management confirmed a half-year distribution of 53.25¢ in line with
expectations and provided guidance for full-year operational earnings
growth of around 5.5% per security. The full year distribution forecast is
unchanged at 106.5¢.
Impact
 While operating income numbers were reassuring, the extent that values
fell for UK, US and New Zealand properties surprised the market even
though the impact on WDC’s top quality portfolios was far less than others
are facing, particularly in the UK and US. Interestingly, WDC and leading
US REIT Simon have taken 3% and 4% stakes in UK mall owner Liberty.
 WDC has available liquidity of $7.3b with the prospect of corporate activity
increasing as global property markets weaken.
 WDC at $17.29 has a premium to current net asset backing of 23%.
Recommendation Impact
We continue to regard WDC as the crème de la crème among Listed Property
Trusts or Real Estate Investment Trusts,(REITs) and while recovery for much
of the sector may be slow and uncertain, at current prices WDC offers longterm
upside - Accumulate.