Shares of Westfield Group (ASX: WDC), Australia's largest property group, have risen 32% in the past twelve months, vs. a 15% rise in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). That's pretty impressive for a company on the scale of Westfield Group, with its $25 billion market cap. So what's behind this market outperformance? Most importantly, can investors reasonably expect for it to continue?
The mall business is a good business
Westfield Group owns and manages some 120 shopping centers in Australia, New Zealand, the U.S, Brazil, and the UK, and counts over 20,000 retailers as tenants. Lease rates fell somewhat and development slowed with the GFC, but in recent years have been recovering nicely, with Westfield Group's global portfolio 97.7% leased as of September 2012, an improvement of 40 basis points over 2011 levels.
In the United States, demand for leases "remains solid," while fewer store closures also contributed to high occupancy. Furthermore, "At World Trade Center, leasing demand is strong for what is expected to be a world-class iconic shopping experience for Lower Manhattan and the City of New York."
In Australia, where Westfield management describes the 2012 retail atmosphere as "subdued" the company says it is still seeing "solid demand for space from both domestic and foreign retailers." Expanding on the strength of its property portfolio, Westfield also successfully opened expansions and initiated redevelopment at Brisbane's Carindale and Melbourne's Fountain Gate this past year.
Full year expectations and valuation
Westfield Group will release its full year 2012 results on February 27, alongside Westfield Retail Trust (ASX: WRT). In what seems a conservative estimate, the company has said it expects funds from operations (a term real estate companies often use in lieu of 'earnings') of 65 cents a share.
It follows that today's share price of about $11.25 reflects an underlying price to FFO multiple of about 17. So Westfield shares aren't cheap, but neither are they screamingly expensive, given the company's solid current business and future prospects. Plans for 2013 include commencing between $1.25 billion and $1.5 billion in new developments, with the company's share of the bill slated to fall between $300 and $500 million.
What's more, with its geographically diverse assets, the company looks well positioned to weather future crises – perhaps more so than Westfield Retail Trust with its interests concentrated in Australia and New Zealand properties exclusively, which leave it more vulnerable to a possible downturn.
The Foolish bottom line
Investors may want to wait for a more favourable price to begin a position in Westfield Group, but would be wise to put the company on their watch lists now.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned here.
