Over the last 18 months Westfield Corp Ltd (ASX: WFD) has massively underperformed the ASX 100 Index. There are already signs that this is starting to change.
Here’s why I think Westfield is going to be a great stock for patient investors in 2018:
Firstly, you are buying into flagship retail assets, primarily in the USA, the UK, and soon Europe. Flagship shopping centres attract higher occupancy levels than out-of-town centres. Westfield is currently enjoying occupancy rates for its flagship sites of over 95%.
Secondly, in its recent third quarter update, Westfield reported that those flagship malls are delivering above average retail sales growth of 3.1%. The fact that its tenants are by and large growing has enabled Westfield to raise rents by an astonishing 9.5% over the last year.
Thirdly, the portfolio is far from static. $3.8 billion is being invested into current projects, at an estimated yield of 7-8%. A further $6 billion is being earmarked for projects in pre-development stage, including Milan.
Fourthly, Westfield is growing its earnings again. Earnings should increase between 3%-3.5% in 2017 to the AUS dollar equivalent of around 45 cents per share. This should accelerate further over the next couple of years.
The group is forecasting a AUS dollar equivalent 34c distribution for the current year. That represents a yield of 4.1%.
Finally, over the last 18 months, Westfield shares have fallen 21% compared to a positive Index return of 11%. However, there are definite signs that share price momentum is starting to rebuild. Over the last two months, Westfield shares have returned double the index. Brokers are turning increasingly positive.
Although Westfield is not exactly cheap, quality never is. I expect the shares to ride improving investor sentiment into 2018.
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Motley Fool contributor James Middleweek 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.