The risks facing Westfield

Can the company overcome these risks to give your portfolio healthy returns?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite falling back over the last month, Westfield Group (ASX: WDC) has given shareholders consistent growth over the last year, climbing from $9.33 to as high as $12.55 last month – an increase of 35%. Whilst the company has enormous growth prospects and is treating shareholders to daily share buybacks, the company also faces significant risks that investors should be aware of.

The declining Australian dollar

After 12 months of trading above parity with the US dollar, the Australian dollar's fall in value comes as a huge relief for exporters and companies with overseas operations. For specialty stores and retailers however, it may not be such good news.

Companies such as JB Hi-Fi (ASX: JBH), Myer (ASX: MYR) and David Jones (ASX: DJS) are slowly recovering from their woes caused by online retailers, and have relied on saving costs and selling higher margin products to return to a profitable state. As many of their goods are imported however, a falling AU$ would result in higher costs.

This, in turn, would mean that they would either have to pass those added costs on (which would repel many customers, who can instead shop online) or they would have to accept lower margins on those products, which would also affect profits.

Should the Australian dollar continue to fall, store closures could occur which would decrease Westfield's profits from rent and would certainly decrease the value of the company's shares.

Reduced rents

Westfield and other property groups including Lend Lease (ASX: LLC), Federation Centres (ASX: FDC) and Stockland (ASX: SGP) have already been forced to reduce rent rates after a number of specialty stores complained that they could not sustain payments. Harvey Norman (ASX: HVN), for instance, said it would close a number of stores located in malls, preferring to instead run stand-alone stores. Unless the company can find other ways to boost revenues, lower rent rates could impact on profits.

To combat this, however, Westfield is in the process of expanding and refurbishing its stores in order to drive income growth.

Consumer confidence

Despite interest rates sitting at a record low, speculation of a possible recession next year coupled with declining global growth is taking its toll on the confidence of consumers and businesses alike. According to a Jones Lang LaSalle Survey, rental growth over the next six months is only expected by 29% of centre managers.

Foolish takeaway

Despite the aforementioned risks, Westfield is focused on ridding itself of less profitable stores as it refreshes its asset portfolio and also offers a solid 4.5% dividend yield plus enormous growth potential. As such, the company definitely warrants a position on your watchlist.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." 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!

More reading


Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »