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Westfield Corp Ltd plots route to significant long-term earnings growth

Shares in Westfield Corp Ltd (ASX: WFD) traded flat today after the group announced it has completed the divestment of five regional shopping centres in the US for US$1.1 billion. The cash raised will be used to reduce debt and redeployed into the group’s giant US$11.4 billion development program.

On the deal the group’s boss Peter Lowy commented: “Our investment program is almost entirely weighted toward our Flagship assets with estimated development yields in the region of 7-8% and is expected to create significant long-term value and earnings growth for shareholders.”

Indeed this family run company has a famously long-term approach to returns that has seen its founder Frank Lowy become Australia’s richest self-made entrepreneur by a country mile alongside another property entrepreneur in Harry Triguboff.

Westfield Corp is now once again focused on lifting the net value of its assets over the long term via increased investment, which may involve limited earnings growth and a seemingly lofty share price relative to net tangible assets in the short term, but as the net asset value rises the earnings from operations and share price may follow higher over time.

Indeed, this is a tried and tested wealth-building strategy that Frank Lowy and family have used to create a $43 billion shopping centre empire from nothing over the last 50 years or so. Given the Lowy family’s track record, know how and experience I would not be surprised if the group’s global ambitions continue to deliver investors market-thumping returns.

While Westfield Corp now runs the international operations, the Australia-focused Westfield shopping centres operate under the name Scentre Group Ltd (ASX: SCG). It also offers investors defensive earnings and an attractive yield in the region of 5 per cent.

However, Scentre is more of a low growth and high-yield option for investors solely seeking income, whereas anyone with an investment horizon of more than two years may find that Westfield Corp offers superior returns.

Both Westfield Corp and Scentre primarily make their money as landlords charging rent, although Westfield Corp recently posted remarkably strong retail sales growth at its US shopping centres, which suggests its heavy leverage to a strengthening US economy in 2016 should be another core attraction to Australian investors.

At today’s price of $9.58 shares in Westfield Corp look a buy in my opinion.

 

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Motley Fool contributor Tom Richardson owns shares of Westfield.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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