Westfield Group (ASX: WDC) has released a trading update for its first quarter and the business appears to be tracking well. Importantly for investors the company confirmed its forecast for a distribution of 51 cents per security.
Most of the highlights for the quarter had already been flagged to the market, including the agreement to form a joint venture (JV) for the ownership of six malls in Florida, the sale of its JV in Brazil and the ongoing buyback, which to date has seen $1.15 billion worth of stock bought back and cancelled.
On the important metric of idle property, Westfield’s global portfolio was 97.4% leased, up 0.2% on the prior corresponding period. While this high level number looks reasonably good, when broken down into regions the USA stood out as an underperformer. Australia/New Zealand and the UK enjoyed 99.5% and 99% lease rates respectively but the USA was just 93.1% leased.
Perhaps the greatest insight to take away from the release is the disparity in rents between Australia and the rest of the world. We all know that Australia is an expensive place to do business; consider a retailer renting space in three Westfield malls around the world. In Australia, the retailer will pay A$1,522 per square metre (psm), in New Zealand that space is nearly 40% cheaper at A$933 psm, and in the USA that same 1 square metre will cost just A$693. No wonder the cost of living in Australia is so high!
The high rents don’t appear to be putting off tenants just yet despite their murmurings. Investors don’t appear concerned either, with the shares of Westfield, Westfield Retail Trust (ASX: WRT), and GPT Group (ASX: GPT) all outperforming the market over the past 12 months. Even Stockland (ASX: SGP), which took a hit to earnings, saw its share price rise post the announcement, although that may have had more to do with the strategic plan it announced.
Property trusts have long been favoured by investors seeking high yielding defensive stocks. The GFC battered investor confidence in the sector after a number of high profile collapses. The sector has found its feet again with profits and share prices rallying. With yields currently sub-5% in the sector, investors should tread carefully, as growth won’t be high and a decent yield is as important as ever.
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