Whilst there are certainly factors that could help boost retail sales and the market’s confidence in general, Domenic Panaccio, Westfield Retail Trust’s (ASX: WRT) managing director, believes that it is still “too early” to see a pick-up in conditions for Australia’s malls.
Panaccio said “The building blocks are in place to give the market confidence that retail sales can lift”, referring to factors such as a more stable government as well as rising house prices. However, results have been inconsistent, and one good month may be followed by one or two poor months, thus giving no clear indication of improving conditions.
Should investors turn their backs on shopping centre operators?
Global volatility, a slowdown in the mining industry and a rising unemployment rate have all contributed towards lackluster retail sales in recent times, which have affected companies such as Myer (ASX: MYR) or David Jones (ASX: DJS).
However, it seems that investors have focused on this subdued retail landscape and the headwinds facing the industry and, in doing so, have ignored the long-term prospects of some of the companies in the sector as well as the shopping centre operators themselves.
Shares in both Westfield Retail and Westfield Group (ASX: WDC) have significantly lagged behind the market over the past 12 months – in part due to these tough conditions. Whilst the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has jumped 20.8% in that time, Westfield Group has gained just 1.3% and Westfield Retail has actually lost 0.6%.
Whilst the market may have turned its back on Westfield, both groups have been focused on strengthening their respective balance sheets by divesting from less-profitable stores and using the proceeds to improve shareholder returns and redevelop their most profitable centres.
For instance, as highlighted by The Australian Financial Review, Westfield Retail has recognised improved revenue from the redevelopment of its Fountaingate centre, located in Melbourne, and also benefited from the sale of its Karrinyup centre in Perth.
The strategy that has been implemented by Westfield should continue to result in increased growth and revenue, which makes the shares very attractive at today’s price.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.