Westfield Retail Trust (WRT) is a real estate investment trust, with an interest in 54 major shopping centres across Australia and New Zealand.
The asset portfolio is owned in a 50/50 joint venture with Westfield Group (WDC).
WRT was spun out of Westfield Group in late 2010 as the latter sought to recapitalise its balance sheet.
Solid March quarter
The quality of WRT’s property portfolio was evidenced in a recent presentation that revealed occupancy rates were above 99.5% at the end of the March quarter.
In the first three months of the year, comparable sales at WRT’s mini major tenants (including brands such as Zara and Apple) grew a healthy 4.3%, helping to compensate for a 1% fall among its major tenants.
Moreover, specialty store sales were up 1.2% in the year to March 31st, 2012, this despite a challenging environment for retailers.
On a per square metre basis, WRT recorded $9,765 of sales in Australia and NZ$8,202 of sales in New Zealand.
The group outperformed its peers on these metrics over the March quarter, with GPT Group logging $8,976 in sales per square metre, and Stockland Group’s occupancy rates averaging 95%.
Future growth potential
WRT’s flagship Sydney asset (Westfield Sydney), which includes food retail and a top end luxury retail precinct, was only recently developed but is expected to be a major income contributor going forward.
This is based on the likelihood of Westfield Sydney generating high occupancy sales relative to occupancy costs.
Westfield Fountain Gate is the group’s other major expansion project in Melbourne and is expected to be completed later this year.
Fountain Gate’s expansion will encompass a new format Coles supermarket as well as over 50 retailers.
We don’t believe WRT’s outperformance is properly reflected in the share price. The group’s net asset value (NAV) is $3.26 per unit, so it appears to be trading a fairly steep discount.
Moreover, WRT guided for full year earnings/distribution guidance of 18.75 cents per security (WRT pays all of its earnings out as distributions).
This implies a healthy yield of 6.8%, which is something we think will be an attraction for income seeking investors.
WRT is also backed by a solid balance sheet and had a gearing ratio of just 21% at the end of FY11.
As such we think WRT is a stock to watch in the near-term.