Westfield (WEFIF, Financial) is arguably the best mall operator in the world. The Australian company owns some of the best Class A mall space in the U.S. and the U.K. If you are bullish on the economy, it’s a good stock.
There are 2.08 billion shares and the market cap is 22.254 billion Australian dollars. Westfield looks to distribute 25.1 cents per share. That would be a 2.3% yield. Funds from operations are expected to be 33.7 cents to 34 cents per share. You do not look at price-to-earnings ratio on a company like this. It is not a “REIT” because it does not fall under American tax laws and SEC regulations.
The company has AU$29.3 billion in assets under management and AU$6.9 billion in projects under development. 82% of the malls have a flagship tenant and 18% are regional, meaning they do not have an anchor tenant. Seventy-two percent are in the U.S. and 28% in the U.K.
Westfield split from its Australian and New Zealand operations in 2014. The operations down under operate under the Scentre Group (STGPF, Financial). Westfield has 35 malls with 6,487 retail stores.
I spoke with Ryan Dobratz of Third Avenue Value Real Estate, which is a shareholder. He said that Westfield has sold off its Class B malls and is focusing on Class A. You can see from their portfolio that they are only interested in major cities like London and New York. Dobratz also pointed out that typically in the real estate business, mall owners charge tenants about 15% of their sales in rent. Because the B and C malls are having difficulty competing with Amazon (AMZN, Financial) and the internet, it gives the Class A mall owners more pricing power. In the future, the Westfields of the world may charge between 15% and 20% of revenues in rent. He also said that the location in London is the largest mall in Europe and that it may offer residential as well.
Dobratz and the Third Avenue team are very impressed with Westfield founder Frank Lowy and his family. The 85 year old survived Nazi concentration camps and made his way to Australia later in life. The family has had a string of successes in real estate. Dobratz said that when Scentre and Westfield split, the family invested more into Westfield.
As of the latest Half Year Report, there was AU$565 million in cash and AU$19.685 billion in real estate. The liability side showed AU$7.4 billion in debt. The investment thesis is that Westfield leverages cash flows from existing properties and continues to build out. They either build out or rehab existing properties like they are in the Century City location in Los Angeles. Either way, it has increased cash flows and dividends for the investors.
The new location where the Twin Towers were in New York is phenomenal. According to the New York Post, “The focal point of it all is the Oculus, the abstract, dove-in-flight-shaped space that’s a hub of fashion, beauty, lifestyle, technology and food stores. All told, it’s like walking around a very fancy and very new airport.”
I have been in the mall in Century City, California, many times. It is located next to some of the most prominent financial, legal and entertainment firms in Los Angeles. I bought my wedding ring there at Tiffany’s a few years back.
When I think of Westfield, I cannot help but think of last night’s Presidential debate. The topic du jour is globalization. How to compete? Where will jobs come from? You have an Australian company that arguably is the best mall operator in the U.S. and U.K. If you are second or third tier, you are losing your shirt. The world is changing so quickly and you have to have a niche and be the best at what you do.
To invest in Westfield, you have to be pretty bullish on the economy. Third Avenue is bottom-up, meaning that they look at individual companies and do not pay so much attention to economics. It is funny how Westfield gets so little attention as an investment in the U.S. If you walked into your main street brokerage firm, they would not have an analyst that followed Westfield. Yet, it is probably the best mall operator in the world and has the majority of its assets in the U.S.
Disclosure: We do not own stock.
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