Shopping centres and retail real estate investment trusts (REIT) can be great sources of earnings and dividend income. With signs that consumer spending is picking up, there will be more shoppers in the malls and stores from here on out. Some of the REITs below are names that you will readily know, but others can be just as good as the biggest.
Westfield Retail Trust (ASX: WRT) is a real estate investment trust with ownership in the 47 Westfield shopping centres in Australia and New Zealand. It’s also a joint venture owner with Westfield Group (ASX: WDC), the company that operates Westfield shopping centres outside of Australia and New Zealand.
In December, Westfield Group announced plans to change its structure and merge its remaining Australian and New Zealand businesses with Westfield Retail Trust, to create a new entity called Scentre Group. Westfield Group will then concentrate on its foreign assets and developments in the US and UK/Europe.
The new Scentre Group will have $28.5 billion in assets and Westfield Group will have 44 shopping centres worth US$17.6 billion. This proposed ownership change is subject to security holder approval with voting expected in May.
Westfield Retail Trust had 2012 full-year NPAT before abnormals of $572.6 million. In its 2013 half-year report, NPAT was $290.9 million, roughly in line with the previous corresponding period.
Currently it has a 6.17% dividend yield and a PE of 16. Compared to the other major retail REITs, it has the lowest return on equity, 5.5%, but it has the lowest price-to-book value, 0.87, just below GPT Group (ASX: GPT).
The day before the 4 December announcement was made, Westfield Retail Trust’s share price was $3. Between then and now it dipped down to about $2.80 and rose back to $3.04.
Of the major retail REITs, Charter Hall Retail REIT (ASX: CQR) has the highest total shareholder return over the past five years, an annual average 35.1%. Its 7.44% dividend yield also stands highest.
For earnings-per-share growth, GPT Group has the best one-year growth rate, rising from 19.7 cents per share to 32.2 cps for the year to 31 December, 2012.
Like buying private property, buying into REITs is more a long-term investment because their share value accumulates slowly over time, as either the assets appreciate in value or more assets are added to the portfolio.
Rental income from retail property such as in a shopping mall can rise as the tenants’ revenues increase. Investors should also check tenancy occupancy rates to make sure they are as close to 100% as possible. In addition, the average length of leasing terms is important because that indicates how stable the rental income can be. The longer the better, as long as there are ways to review rental prices.