Westfield Profit Up, Shares Down.

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Westfield Profit Up, Shares Down
August 30 2007 - Australasian Investment Review – (AIR)

Investors continue to be nervous about any stock with exposure to the US, especially US consumers, in these times of worries about the American economy, sub-prime mortgages and credit market strains.

And no one stock has worn more than its share of investor concern than the Lowy-family controlled Westfield group, which is a major player in Australian and especially US retailing.

The shares have taken a battering since itcompleted a major capital raising of $3 billion in June and July, just as nerves were starting to fray about the US economy and the sub-prime mortgage crisis was emerging in all its gory detail.

The credit markets freeze earlier this month saw the shares sold down to just over $18, before they recovered strongly last week to well over $20.

But the poor trading Monday and Tuesday in the US, with more signs of stress in housing and concerns about consumer sentiment, saw the shares sold off again yesterday, despite the group reporting solid first half earnings.

WDC shares closed 36c lower at $30.36, but at one stage they hit $20.30.

Excluding property revaluations, profit rose 7.4% to $844 million on a constant currency basis (but after revaluations, which are one-off items) the profit was reported at $1.97 billion, which was down on the first half of 2006 when property revaluations drove it to $3.38 billion.

Despite the uncertainty, Westfield (which has interests in 119 shopping centres worth almost $62 billion in Australia, the US, the UK and New Zealand) was confident about the immediate outlook, but no hard guidance was given except to say that the 2007 distribution remained on track at 106.5c per security.

WDC said that the distribution for the six months (including income hedging) was $946 million or 53.25 cents on a per security basis, representing 50% of the estimated full-year distribution.

The company is cashed up and it says it has $7 billion worth of development projects underway.

“Focus will remain on the group’s development program which will enhance the group’s earnings.

“The Group currently has approximately $7 billion of development projects underway and in excess of $10 billion of new development projects expected to commence over the next three years.

“Given this extensive development program and the recent capital initiatives, the Group is well positioned for future growth”, Westfield said in its report on the first half to the ASX yesterday.

Westfield said the interim net profit figure included property revaluations and market-to-market adjustments.
Shopping centre assets were revalued during the period, resulting in a $1.19 billion increase, including $501 million created through development.

“There was a solid operational performance across the global portfolio,” Westfield Group managing directors, Peter Lowy and Steven Lowy said.

They point to the continuing delivery of the group’s extensive development program, the efficient use of capital and the strengthening of its balance sheet.

“Currently there are 16 major projects underway at a forecast investment of $7.2 billion, with the group’s share being $5.1 billion,” they said.

“This includes $1 billion of developments commenced in the first half.

“For the 2007 year, the Group expects to complete $1.9 billion of major development projects (Westfield Group investment - $1.4 billion), of which $270 million (Westfield Group investment - $212 million) has been completed with a weighted average development yield of approximately 10%.

“In addition, over the next three years, the group is scheduled to commence in excess of $10 billion of new development projects,” they said.

Westfield said 93.5% of its portfolio was leased at the end of the first half, while comparable shopping centre net operating income grew 6.1% in Australia and New Zealand, 2.6% in the US and 6.7% in the UK.

There was strong growth in specialty retail sales in Australia and continuing growth reported in New Zealand, the UK and the US.

The group said it had raised almost $6 billion in 2007 through equity raising, a joint venture with GIC at Westfield Parramatta in Sydney and the establishment of a UK-based wholesale fund.

Westfield also announced the strategic re-alignment of its US portfolio.

Four assets were divested in the St Louis market for $US1.04 billion ($1.28 billion).There was also a re-investment into the Florida market with the acquisition of two assets for $US400 ($A492.40) million.

In Australia, Westfield formed a new joint venture with LaSalle Investment Management Inc, investing $738 million for a half share in Melbourne’s Westfield Doncaster. This is on top of the $3 billion capital raising.

Copyright Australasian Investment Review.
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