Westfield Group (WDC) News Update

Submitted by Jim Thesiger on 5 June, 2008 - 13:47

Westfield Group (WDC) has a $18.50 share price target and it is upgraded to Buy from Hold from Australian stock analyst Macquarie Research Equities.

Westfield Group (WDC) : Playing Hide and Seek

A place to hide; upgrading to Buy — With the recent share price decline, we upgrade Westfield to Buy from Hold. Westfield represents good value compared to Australian REIT peers given its relatively lower earnings risk, good valuation discount, quality assets, and low re-financing risk. Westfield is also attractive relative to Global peers.

Nobody is immune —With direct real estate values under pressure, we take a more cautious approach on valuation, downgrade our target price to $18.50. With development upside valued conservatively at ~$1.50 per share, Westfield is trading at an attractive implied portfolio cap rate of ~6.3%.

The Aussie portfolio is well positioned — With specialty rents growing at CPI +2% and portfolio occupancy >99%. High recent SSNOI will moderate, however Citi still expects 3-5% retail sales growth in FY08e and FY09e, boding well for Westfield’s NOI growth. Occupancy declines are unlikely to hit NOI, given the Australian portfolio maintained >99% occupancy throughout the previous economic downturn in the early 1990s.

Development pipeline still highly accretive — As outlined in our note Westfield Group (WDC.AX): Don't WACC my IRR, we still expect the Westfield development pipeline to create high shareholder value even in the current environment. Westfield’s 12-15% project IRRs assume a project’s end value is capitalised on the project yield, not on a lower end value cap rate.

Valuation pulled back —Our target price decline is based on both a higher beta (0.80 versus 0.75 previously) and higher terminal yield in our DCF. Also, we have increased the average ge NAV cap rate to 5.90%, up from 5.75%