Shopping centre giant Westfield Group (ASX: WDC), founded and run by billionaire Frank Lowry, has released its full-year results showing a meagre 3% rise in underlying earnings before interest and tax. Lowry has done a superb job of building Westfield into a business with a commanding domestic market share with an increasing portfolio of sought-after properties in major global cities including London and San Francisco. Due to the high level of foot-traffic Westfield’s malls attract, Lowry and his team have for many years been able to price rents to extract maximum dollars from their tenants. However, the results just released show that the Australian market, which accounts for roughly half of Westfield’s business, is struggling, with management stating that rents for new tenants were being negotiated at lower levels.
Insights from Westfield’s results
For Westfield and its listed peers, including Stockland (ASX: SGP) and GPT Group (ASX: GPT), rent increases are becoming tougher to implement, and some rents are even decreasing. This will make achieving growth a tough ask and is one reason investors should be weary of paying a high multiple for the stocks.
For retailers (the tenants), rent decreases are a welcome relief. While anchor tenants, such as Woolworths (ASX: WOW) and cinema operator Village Roadshow (ASX: VRL) have always been able to negotiate favourable rents with shopping centre owners, due to their sheer people-pulling power, smaller retailers such as Country Road (ASX: CTY) and Kathmandu (ASX: KMD) have been at the mercy of landlords who have always squeezed as much out of their less powerful tenants as possible.
One of the traits of successful investors is their ability to see opportunities amongst the noise and chaos of the share market and the economy. While shopping centre owners may be experiencing some difficulties on the rent front, this could provide opportunities for some nimble and clever retailers — and likewise opportunities for some nimble and clever investors.
Ready to start shopping for high-yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Tim McArthur does not own shares in any of the companies mentioned in this article.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
- 3 ASX stocks to buy now to get rich later – October 20, 2016 1:34pm
- Why this fund manager is worried about the sustainability of bank dividends – October 18, 2016 7:56am
- Here’s why I might buy these 2 beaten-up share bargains – October 17, 2016 4:18pm