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Westfield Group or Westfield Retail Trust, which should you buy?

Shareholders in both shopping centre behemoth Westfield Group (ASX: WDC) and its affiliate Westfield Retail Trust (ASX: WRT) can look forward to a stronger 2014 than last year, according to CLSA, which has increased its price target on both groups.

Westfield Group, which is currently trading under $10 per share, is expected to climb to $11.70 per share, while the Trust is expected to reach $3.52 from its current price tag of $3.02. These figures represent upsides of 17.4% and 16.6% respectively, without taking dividend distributions into account.

In order to achieve these targets however, the management group behind the corporation may need to sweeten the terms of its proposal to split its domestic and international assets. Under the deal, which was proposed in December 2013, Westfield Group’s and Westfield Retail Trust’s Australian and New Zealand assets would be combined to form a new company, known as Scentre Group. The international assets would then form another new company to be known as Westfield Corporation.

While a 75% approval rate is required in the vote, there is still a chance that the deal will not be passed with many investors and analysts remaining uncertain regarding the merger ratios and transparency of the plan. Regardless, the prospects of both groups are looking attractive at today’s prices.

Westfield Group

Should investors approve the split, the group, which would become Westfield Corporation, will possess a number of key shopping malls worth US$5.8 billion ($6.6 billion), located in the downtown or central business districts of major cities including London, New York, Los Angeles and San Francisco.

For instance, some analysts have pegged the company’s Ground Zero mall, located in New York, to become one of Westfield’s best performing global assets due to its prime location, describing it as the company’s “crown jewel” – particularly with the growing white-collar workforce in surrounding areas.

Equity broker, CLSA, believes that these prime locations with strong rental growth prospects “will prove to be attractive to investors”.

Westfield Retail Trust

Shareholders in the Trust have been left confused regarding the deal and the long-term benefits they will be entitled to. CLSA cautioned that: “The biggest concerns, in our view (regarding the deal): the 16.7 times multiple WRT is paying for Westfield’s project income; higher WRT debt (increasing by $7.1 billion; including $1.4 billion of transaction and debt prepayment costs); potential exit of the Lowy’s in Scentre; and who owns the Westfield name in Australia.”

The price target of $3.52 has been made not taking into account the possibility of an improved offer for the Scentre deal. CLSA believes that December retail figures will exceed those from November which should point to stronger growth for the year ahead.

Foolish takeaway

Investors and analysts have been left to crunch their own numbers regarding the deal and will likely have to wait until more clarification is provided in the explanatory memorandum, which will likely be released in April.

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

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