The world’s biggest shopping centre owner by value, Westfield, has put into numbers what consumers and the malls’ tenants already knew: sales are slipping across the country.
In its full year result, the group said that sales for its Australia and New Zealand malls were forecast to be about 1.5 to 2 per cent this year, which is at the lower end of analyst’s exectations.
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Westfield CEO comments on result and outlook
Westfield CEO talks with BRR Media about the financial result and the outlook.
Co-chief executive Steven Lowy said Australian retail conditions were subdued for the 2012 year and forecast a similar performance for the next 12 months.
He said it was a combination of a rising savings rate by households, low inflation and a generally cautious consumer.
He added that lease renewals were flat, while the rent for new tenants was being negotiated at lower levels.
‘‘The December quarter was softer in Australia, but it seemed to bounce back in January,’’ Mr Lowy said.
As local revenues sag, the mall operator plans to increase investments in the US and UK to take advantage of rising retail demand, co-chief executive Peter Lowy said.
The company expects 60 per cent of its interests in projects to be in the US and UK in about four years, from about 55 per cent now, Mr Lowy said.
Westfield is also on the hunt for a new ‘‘unique’’ market in Western Europe, similar to Milan, where it will next year start building one of the region’s biggest shopping malls, he said.
‘‘You’ll see a bigger increase coming out of the other markets as Australian developments slow down a little bit,’’ Mr Lowy said. ‘‘What we’re doing in Europe is trying to see if we can find other sites that have the characteristics of Milan, where the customer is underserved but has large amounts of disposable income, and the real estate is in the right place.’’
Analysts said the overall profit result was in line with market expectations but said the outlook for the Australia/NZ portfolio continued to deteriorate while the US portfolio was expected to deliver stronger net operating income growth in 2013 and beyond given improved sales growth.
Simon Wheatley, head of real estate research at Goldman Sachs Australia, said that while the outlook was similar to his expectation and reflected a part period impact from the sale of assest in 2012, ‘‘we believe investors may be disappointed by another year of low funds from operations (FFO) growth’’.
Profit rises 18%
Westfield Group reported a net profit of $1.72 billion for the 2012 financial year, an 18.3 per cent increase from the previous corresponding period and in line with market expectations. It declared a dividend of 24.75 cents per share, taking the dividend for the financial year to 49.5 cents.
Also today, Westfield Retail Trust, which owns stakes in Westfield's Australian and New Zealand shopping centres, reported a 14.7 per cent decline in the net profit for the 2012 year in what the company said was a challenging operating environment. Westfield Retail will pay a dividend of 18.75 cents.
Westfield Group shares were up 1 per cent at $11.19 in early trade, while Westfield Retail was also up 1 per cent to $3.17, both outperforming the general market which had added 0.5 per cent.
Westfield an 'underperform'
Macquarie Equities issued an intial ''underperform'' on the world's biggest retail landlord, after the group warned that sales for its Australian and New Zealand centres were forecast to be flat in the coming year.
In a note to clients, the broker says: ''The stock continues to trade above our price target and on of about 18 times the PE multiple and accordingly we currently have an 'underperform' recommendation on Westfield.''
Westfield Group's funds from operations, which gauges a property company's ability to generate cash, climbed to 65 cents a share, from 64.8 cents a year earlier.
"The performance for the year has been very good and in line with expectations," Mr Lowy said. "This has been a significant year for the group as we continued to position WDC to generate greater shareholder value."
Westfield Group also reported earnings before interest and tax of $2.12 billion, a 3 per cent increase from 2011.
The company said it experienced high levels of occupancy and a growth in average rents across its markets. Property net operating income climbed 4.2 per cent in the US and 2.9 per cent in Australia and New Zealand.
"In Australia, whilst retail conditions have been subdued for most of the year, the business has performed well.
"In the United Kingdom, the Group's two world-class centres in London attracted over 70 million customer visits during the year spending more than £1.9 billion," Mr Lowy said, adding that Stratford City had an "outstanding performance" during the 2012 London Olympics.
Mr Lowy added that a significant strength of the US' second-half performance was the record number of shops opened in the country in 2012.
The Group is developing projects in Milan and Croydon in south London, expanding Westfield London and is redeveloping the Century City and Valley Fair centre in California, Westfield Miranda in Sydney and Mt Gravatt in Brisbane.