Westfield

Westfield (WDC) has a Neutral 1 share trading recommendation and a $21.25 price target from Australian stockmarket analyst UBS. WDC have announced the establishment of the UK Wholesale Shopping Centre Fund as foreshadowed at the time of the $3bn equity capital raising last month. The centres include Merry Hill, Belfast, Tunbridge Wells and also Derby once its development is completed (before Oct 2009). Initial yield to be 4.3% after costs with Derby to be sold to the Fund on a yield of 5.0%. 67% of the fund has been taken up by 2 investors with the remaining third to be marketed to a wider group. Accretive but no change to DPU: Initially the establishment of the fund is on average 1.2%pa accretive assuming the proceeds are used to pay down debt (6.5%). If the proceeds are subsequently reinvested in the development pipeline yielding 9%, there is accretion of 2.9% on average. DPU guidance has been maintained at 106.5c. WDC cashing up with $7bn raised in 6months: WDC has now raised $7bn in 6 months, through equity and property sales/funds management initiatives. This will fund half of their 5 year development program (12-15% IRR unlevered) which needs $14bn+ just for WDC's interests. They expect Westfield to continue to sell more mature assets as it works through its current pipeline. Other possible asset sales include US$450m (announced as part of capital raising) and further tranches of Property Notes. The analysts' DCF valuation is $21.25 and NAV is $21.43. Their Price Target is based on a DCF model.

Westfield has a Neutral 1 broker call and a $21.18 share price target from Australian Stocks analyst UBS. Earnings Upgrades post Raising: $10bn of development starts over the next 3 years: WDC have 19 projects under construction (estimated total cost A$7.6b, Westfield's share $5.4bn with the majority of the difference being 50% ownership of Westfield London). WDC expect to commence in excess of $10b (WDC's share $9bn) of new projects over the next 3 years. EPS increased by 0.5% to 3.4% in FY07 to FY11: The analysts have increased their development pipeline by $5bn, the major project being Stratford (c$4bn, c5.5%). They have also increased Westfield’s non-owned dev pipeline by $0.9bn. The EPS impact of the increased development starts & $3bn capital raising is 0.5%-3.4% from FY07-FY11e. NOI growth currently 2.5%: If they increased their forecast NOI growth across the portfolio from their base 2.5%pa to 3.0%pa or 3.5%pa it would provide on average 1.6%pa or 3.2%pa accretion. This would increase our valuation by 40c and 84c respectively. Valuation increased by 2.7%: Their revised EPS forecasts increased our Fair Value and Price Target to $20.29 and $21.18 respectively. Westfield are more focussed on maximising returns on capex of 12-15% IRR (unlevered), rather than acquiring mature assets on 8% IRR in the direct market. To that end, they expect Westfield's to continue to sell more mature assets to keep gearing below 45% as it works through its current pipeline. NAV $21.25 (exc. any premium for the Westfield brand). Their price target is based on a DCF model.

Meanwhile, another stocks analyst, Citi Investment Research have a NAV based price target of $23 and a Buy rating. WDC is raising $3bn in equity at $19.50, an 18% discount to the analysts' price target. The raising is on the back of a ramp up in the development pipeline, though the analyst expects acquisitions are on the agenda. They maintain their positive view; the substantial pipeline will drive earnings growth and value creation. Bringing forward projects such as UTC and Valley Fair will bring forward earnings accretion. Accretion will occur upon various project completions between FY09-FY11. Westfield stated they will start projects of $9b over the next 3 years. The analyst had approximately $7bn in their numbers already. A drop in gearing, potential to JV assets and issue property linked notes gives Westfield significant opportunity to pursue acquisitions. The UK will be a likely focus, assisted by a possible wholesale fund. Though no details around the timing or assets were given. It is likely stabilized assets such as any part of Royal Victoria Place, Castle Court or, once completed, White City could be included in the fund. The other UK assets are flagged for further development works. Management stated gearing will drift back to 40-45%. With the likelihood of revaluation upside and potential to JV stabilised assets, there is ample ability to fund more acquisitions while keeping gearing lower.

Shares analyst UBS have a look at which shares Outperform when the Australian dollar rises. The analyst: The obvious way to measure a share's currency sensitivity is to look at its EPS sensitivity. However, the shares analyst note that this ignores what else is going on when the Australian dollar (A$) is rising.