In the lead up to the vote for the controversial merger proposal between Westfield Group (ASX: WDC) and Westfield Retail Trust (ASX: WRT), one of the more prominent questions on the minds of investors has been which is the more attractive investment?
Since the announcement was made on December 4 last year, Westfield Group’s shares have dropped by 1.2% despite the wide belief the deal is weighted in its favour, while Westfield Retail’s shares have risen by 4.7%, defying concerns regarding the hefty management costs ($1.8 billion) they would be responsible for paying if the deal is approved.
There is a strong case for both companies being the better investment.
Westfield Group – Dividend yield: 4.9%: P/E ratio: 15.9: P/B (price-to-book) ratio: 1.46
Westfield Group is a very attractive prospect at today’s price of $10.65. Although investors are (justifiably) concerned about the future of the bricks-and-mortar retail industry, the Group has been divesting its non-core assets in favour of strengthening its more profitable shopping centres located in some of the world’s most popular cities.
For instance, it is redeveloping its Westfield London, Westfield Croydon (in London’s south) and its New York World Trade Centre stores, giving it excellent exposure to the recovering US and UK economies. As consumer confidence continues to improve, so should Westfield’s earnings. The stock currently boasts a 4.9% dividend yield and is trading on a price-to-book ratio of 1.46.
Westfield Retail Trust – Dividend yield: 6.4%; P/E ratio: 16: P/B ratio: 0.89
At this late stage, analysts appear to prefer Westfield Retail Trust out of the two. Investment bank Moelis, for instance, said, “Westfield Retail Trust is the one to own. We see upside from all potential outcomes from the deal”. The shares seem to have rallied since the announcement was made based on the hope that it would be altered more in the Trust’s favour, although that is looking increasingly unlikely given that the original terms were not altered upon the release of its explanatory memorandum last week.
Regardless of the outcome of the proposal, the company’s Australian platform remains strong and should deliver investors solid returns for years to come – particularly with consumer confidence continuing to improve in Australia.
Although analysts are more bullish on Westfield Retail Trust, I like Westfield Group’s prospects that little bit more. While its shares have delivered a lacklustre performance since the announcement was made, they should start to move once investor uncertainty over the deal is alleviated.