The pace at which Westfield Group (ASX: WDC) has been buying back its own shares recently has raised many eyebrows – particularly after Thursday, which saw the company buy a total of $279 million worth of its stock.
Whilst the shopping centre giant originally committed to repurchasing 10% of its issued stock in February 2012, the group then gained the required approval from shareholders to buy a further 5%.
According to Goldman Sachs analyst Simon Wheatley, $1.44 billion worth of stock had been repurchased in the 18 months to August 2013. In comparison, an incredible $948 million has been repurchased since the company reinstated its buyback program in September 2013.
Wheatley said, “Since recommencing the buyback in mid-September 2013, Westfield Group has accounted for 30.4 per cent of daily volume on average and, including Thursday, over 50 per cent of total volumes on three occasions.”
So why has the company picked up the pace? Since the global financial crisis, the company has maintained a heavy focus on strengthening its balance sheet and increasing long-term sustainability.
With this in mind, Westfield, along with its affiliate Westfield Retail Trust (ASX: WRT), has divested from a number of shopping centres with poor development prospects and have instead reinvested that money into expanding or redeveloping its more profitable stores.
Whilst this strategy serves to benefit the company and its shareholders in the long term, it also results in an immediate loss of income as the yields recognised from those malls cannot be quickly replaced. As such, it is believed that the rate at which the company has bought back its shares has increased in order to reduce the dilutive effect of the asset sales.
Considering Westfield’s dominant position in the global property market, its current price tag of $11.04 and P/E ratio of 16.8 does not reflect its future growth or earnings prospects. Meanwhile, its diversity across global markets makes Westfield a more attractive prospect than others in the sector, such as GPT Group (ASX: GPT) or Federation Centres (ASX: FDC).
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.