Australian shopping centre behemoth Westfield Group (ASX: WDC) owns and manages retail properties in Australia, New Zealand, the UK and the U.S. Following the prolonged GFC market jitters — which hit the retail sector particularly — Westfield Group has recovered nicely, gaining 27% in the last 12 months.
This is against a corresponding 13.8% rise in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) and versus fellow property companies GPT Group (ASX: GPT) and Stockland (ASX: SGP), which outperformed Westfield over this period, as well as spin-off Westfield Retail Trust (ASX: WPT), which underperformed its parent.
Thus investors may wonder: What does the future hold for Westfield Group, and what upside potential is left?
Growth, Brazilian and Italian style
In its 50-year operating history, Westfield Group has only entered a small number of new markets, so it seems safe to assume that management feels strongly about the potential in Brazil and Italy. Both were announced as new markets for the company in 2011, as Westfield purchased a stake in Brazil's Almeida Junior Shopping Centre and also announced an $160 million joint venture in Milan.
The company's entry into these new markets holds potential for greater investor returns over the long run — though currency issues in Brazil are a source of concern. (The volatile Brazilian real has lately declined in value.)
Currency woes or no, it's still plausible to guess that, ten or more years from now, Brazil, for instance, could be the home of dozens of Westfield centres. With the country's population of 200 million, and its burgeoning middle class, there certainly seems a substantial market in the long term.
Selling off under-performing assets and focusing on ROE
Aside from expansion, Westfield Group has recently looked to sell off some of its underperforming assets, in the U.S. and elsewhere, strengthening its overall portfolio.
As The Sydney Morning Herald recently reported, "Westfield Group's divestment of a 50 per cent interest in its portfolio of eight assets in Florida has sparked speculation that a similar deal is being contemplated in Australia." This may include selling down some Australian and New Zealand assets either to Westfield Retail Trust or the highest bidder.
The company is using the cash for its expansion into new markets and for buybacks. This is part of a plan to return the company to a higher return-on-equity model, and also good news for investors in the long term.
The takeaway for investors
Westfield Group remains an attractively diversified retail-real estate play. At 15 times earnings, the shares seem reasonably priced given the company's modest growth prospects.
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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 Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.
