WDC - Westfield Group

[kermit345]

Although even once the distributions reduce due to the lower payout ratio, at least the capital will then be put towards either reducing debt or growth operations.

Either way its going to improve the balance sheet of the company and outcome for holders of WDC (as long as they use the retained cash wisely). The next 1-3 years could be important for WDC I feel, with hopefully a sustained US recovery, and investing of the new retained cash which isn't felt in the SP overnight but will eventually be beneficial to shareholders.

 

[Tysonboss1]

I support the lower payout ratio of 75% of cash flow.

It should see higher dividends become available in the future, while also lowering debt related risk.

By retaining 25% of cashflow they will have an extra $500M per year to fund the development pipline, Westfields has a history of getting 12%-15%pa return on capital invested into developments / redevelopments so the retained income will translate into higher cashflow in future years meaning larger dividends.

 

[nulla nulla]

I support the lower payout ratio of 75% of cash flow.

It should see higher dividends become available in the future, while also lowering debt related risk.

By retaining 25% of cashflow they will have an extra $500M per year to fund the development pipline, Westfields has a history of getting 12%-15%pa return on capital invested into developments / redevelopments so the retained income will translate into higher cashflow in future years meaning larger dividends.

Hopefully they will also use the retained earnings to reduce the gearing levels of debt to sub 30% like some of the Australian based reit's.

 

[Tysonboss1]

Hopefully they will also use the retained earnings to reduce the gearing levels of debt to sub 30% like some of the Australian based reit's.

their debt is already at somthing like 35% LVR,

Even though they have used 100% finance on to fund their properties there are several factors than make them give them low LVR.

1. the first is time, inflation has taken really lowered their lvrs over time, inflation has increased the cashflow and valuation of all the properties that were built in the 60's, 70's, 80's, and 90's .
2. they develop their properties themselves so the loan is quite small compared to the final value and cash flow of the property
3. they often sell off part of the property to institutional investor which lowers debt, eg. they borrow and spend $300M on land and construction costs and end up with a property that may be worth $500M they then sell a 50% share to some institution for $250M lowering the debt on that deal to $50M

 

[drsmith]

Westfield has announced an estomated distribution of $0.47 payable at the end of Feb. The stock is now trading ex-distribution so anyone who buys now will not get it.

Future distributions will be lower given a change in payout ratio from 100% of operating income + associated hedging to around 70-75%. Expect future half yearly distributions of around $0.35.

If a $0.64 distribution over the next 12 months represents 70-75% of operating income + associated hedging, then the latter is anticipated by the directors to be in the range of $0.91 to $0.85 per stapled security. That compares to $0.94 for the past 12 months.

Perhaps one factor behind the share price reaction to the result.

 

[Tysonboss1]

WDC is showing some weakness today, I can't really see any reason why they are under such selling pressure, I actually thought that the report was pretty good.

The only thing that I can think of is that the divdend payout ratio change has caused a bit of uncertainty.

 

[kermit345]

Could be due to the mentality of un-informed investors simply seeing a drop in dividend and thinking that means the company is doing worse rather then understanding its due to a lowering of the payout ratio.

I see it as a positive as well, shows management are taking pro-active steps to continue growth and its investment pipeline. They are under some slight pressure at the moment due to exchange rates and weakness in the US, however as i've mentioned previously as a long term play I have confidence in their ability to provide meaningful growth and income going forward.

Sell downs of this natue just provides an opportunity to obtain a holding at a lower price in a quality company.

 

[Julia]

Could be due to the mentality of un-informed investors simply seeing a drop in dividend and thinking that means the company is doing worse rather then understanding its due to a lowering of the payout ratio.

I see it as a positive as well, shows management are taking pro-active steps to continue growth and its investment pipeline. They are under some slight pressure at the moment due to exchange rates and weakness in the US, however as i've mentioned previously as a long term play I have confidence in their ability to provide meaningful growth and income going forward.

Sell downs of this natue just provides an opportunity to obtain a holding at a lower price in a quality company.

"The mentality of uninformed investors", huh?
I wouldn't be owning this in the first place, despite it being so frequently put into a basic core p/f.
This always seems to be on the basis of "be patient, and the quality of the company will bring its eventual rewards".

Well, in the meantime, it's been trading sideways for some time, didn't enjoy the sharp rally from March 09 that most other stocks experienced, and has now been trading below the MA and in a fairly clear downtrend for the last week.

 

[kermit345]

What I mean is, people who don't actually investigate the stock and simply look at a brief slideshow of the company results and see the dividend has dropped considerably since the last payout get paniced and sell out. Without fully understanding why the dividend has dropped and what the actual consequences of dropping the dividend are (i.e. positive outcome or negative outcome).

Its the same with any bad news, it stings to start off with and people panic, but once some time passes and people realise the news isn't quite so bad, the euphoria of the stock settles back in.

I own WDC and agree, there have been better opportunities over the past 12 months. However it is also nice to have some stocks in your portfolio that are steady with considerably lower risk then the boom or bust stocks.

 

[Miner]

I am sharing Bell Potter's report on WDC published today in their website.


As has been posted in several threads, I do read Bell's report, interprete myself and try to understand what are they saying in between the lines and 8 out of 10 I follow opposite direction of Bell Potter's recommendation.

DNH

As always please do your own research and make decision fitting to your own strategies.

 

[So_Cynical]

it's been trading sideways for some time, didn't enjoy the sharp rally from March 09 that most other stocks experienced, and has now been trading below the MA and in a fairly clear downtrend for the last week.

Hey Julia...WDC went from 8.86 in March to 14.33 in Sept, sure its not as spectacular as some stocks rose in that period, but still a 62% rise in 7 months is hardly a disaster for a property company.

And what's wrong with a share price going sideways :dunno: all i see are the buy and sell levels screaming at me saying hey come take an easy 10% and or get yourself an easy free carry position in a very low risk high reward stock.
~

 

[Tysonboss1]

This always seems to be on the basis of "be patient, and the quality of the company will bring its eventual rewards".

WDC ticks all the boxes as far as I am concerned, even more so now that the dividend pay out has been reduced, and dividend reinvestment has been canned.

 

[Julia]

Well, whatever makes you happy, fellas.

We all have different approaches and criteria for what constitutes a good stock.

WDC wouldn't make the cut for me on the basis of insufficient capital appreciation. If I don't want to grow my capital, I'd sooner leave the money in the bank.

It's still a very reasonable dividend, though, if that's what you're looking for.

 

[Tysonboss1]

WDC wouldn't make the cut for me on the basis of insufficient capital appreciation. If I don't want to grow my capital, I'd sooner leave the money in the bank.

Well WDC closed today at $11.65, I think there would be ample capital growth over the next 12months, 5years and 10 years that when added to the dividend will create a great longterm investment.

How about you put forward your number one stock pick and we will campare the two in 12 months, just for fun

as far as capital growth is concerned wdc has historically been a stock market super star, I think $1000 invested in westfield holdings when it listed would be worth somthing like $88 million today, I am not saying that will be repeated but the is potential for growth there.

I am buying into WDC as a longterm holding that produces a steady income stream that is naturally hedged against inflation and will grow as the company completes it's development and redevelopment pipeline.

After all it is a property investment so I am not expecting 40%pa returns, but 10%+ should be achieveable, atleast from it's current low base.

 

[nulla nulla]

Well WDC closed today at $11.65, I think there would be ample capital growth over the next 12months, 5years and 10 years that when added to the dividend will create a great longterm investment.

How about you put forward your number one stock pick and we will campare the two in 12 months, just for fun

as far as capital growth is concerned wdc has historically been a stock market super star, I think $1000 invested in westfield holdings when it listed would be worth somthing like $88 million today, I am not saying that will be repeated but the is potential for growth there.

I am buying into WDC as a longterm holding that produces a steady income stream that is naturally hedged against inflation and will grow as the company completes it's development and redevelopment pipeline.

After all it is a property investment so I am not expecting 40%pa returns, but 10%+ should be achieveable, atleast from it's current low base.

I can't comment on the long term value garnered by anyone investing in Westfields Initial Public Offering. I can comment though on the shares I held in Westfield America (wfa) that rolled into Westfields Stapled shares (wdc). The purchase costs of my wfa equated to $13.50 per wdc and I held them all the way up to the dizzy heights of $21.00+ and all the way back down to $10:30 (they went down under $9.00 after I bit the bullet).
Even though I had received significant returns in the interim from steady dividends, the lesson learnt was to take the profits on capital gains when the share price is on the rise.
Holding for the "long term" simply means you will ride the rollercoaster up when they go up and will ride the roller coaster down when they go down.

 

[kermit345]

That also depends quite a bit on your strategy as well though nulla nulla as to when you'd like to get out of a stock. I don't think those of us that like WDC think of it as a capital gainer that will dramatically improve the growth of our portfolio. We're looking at it from a core position to add exposure to the property sector with minimal risk. If it does *only* provide capital growth of say 7% per annum and a yield of say 4% I would still be happy with that from a core holding perspective (still better then any term deposit).

The satellites you add around WDC is where you can attempt to make your significant capital gains, and if they don't go so well, you've still got WDC puttering along with its average results.

I can see where Julia is coming from and understand WDC is not going to produce massive results. However for long term investors you do need some core holdings that produce moderate results with smaller risk over a long period of time. I personally don't think I'd like the volatility involved with having all my holdings chasing large capital growth.

 

[Tysonboss1]

. The purchase costs of my wfa equated to $13.50 per wdc and I held them all the way up to the dizzy heights of $21.00+ and all the way back down to $10:30

Even though I had received significant returns in the interim from steady dividends, the lesson learnt was to take the profits on capital gains when the share price is on the rise.

Holding for the "long term" simply means you will ride the rollercoaster up when they go up and will ride the roller coaster down when they go down.

That fall you mentioned was caused by the one of the biggest share market crashes in history. The price did not fall due to weakness of westfields asssets. (except for that $23 was probally over inflated in the first place caused by the worlds biggest bull market)

As you said you were earning a good yield through dividends based on your entry price so their is not need to sell just because the market gets a bit choppy.

I look at buying a business like buying a farm, If you bought a farm at $500 an acre and knew on average it would return about $80 and acre in cash flow per year, would you sell out just because the price had dropped to $200 an acre because your neighbors were panic selling. Probally not.

So many people get caught up in a game of chasing short term results fom long term assets, it's a bit crazy really,

 

[kermit345]

Basically agree with everything Tyson has said. When purchasing westfield its about obtaining a share in the company and underlying assets at a reasonable price. If the price you thought was reasonable then drops, that provides a cheaper entry point to the same quality company and assets you bought into previously. It should not trigger the mind-set of selling unless something has actually gone wrong with the underlying entity, rather then a market price that is set with a short term outlook by a portion of investors that buy/sell with their heart and not their head (i.e. follow the trend of everyone else and not understand the underlying entity is still just as strong as it was before).

Now obviously in westfields case, the assets are still strong but just not performing quite as well (i.e. vacancies in UK/US), so a lower share price is warranted. However the company is still producing reasonable returns (both on a company level and as dividends for a shareholder level) and also has a development pipeline in place to produce future growth and is not overrun with debt.

Just because the market is currently very volatile and has been acting on impulse news rather then long term outlooks, I don't think that warrants not being in a company because the market is selling it off. The underlying entity with your own research is what your investing in, not the short-term perception of the market (of course this is in regards to long term core holdings, if your chasing short term spec stocks obviously the market perceptions play a large role).

It all depends on your investment strategy, but if your looking at a large company like WDC when your aggresive spec investor then obviously your strategy is off point already anyway. As a long term core asset, i think the underlying company is undervalued and over the long term you'd expect that the market realises that (once these tougher times continue to subside and volatility to company announcements lowers).

 

[drsmith]

Westfield's management has had a very good track record over the long term. Not perfect by any means (who is ?) but that's something in it's favour.

Long term though it faces serious headwinds. Firstly, if the western economies in which it operates can reduce the real value of debt by inflation this will put new pressure on property capitalisation rates at some point as interest rates for deposits rise. If there is a second wave to the GFC then that's a much more serious problem.

Secondly there's the prospect of lower retail sales growth post GFC and the impact of that on the potential for development.

Its best days are most likely behind it.

 

[Julia]

I can't comment on the long term value garnered by anyone investing in Westfields Initial Public Offering. I can comment though on the shares I held in Westfield America (wfa) that rolled into Westfields Stapled shares (wdc). The purchase costs of my wfa equated to $13.50 per wdc and I held them all the way up to the dizzy heights of $21.00+ and all the way back down to $10:30 (they went down under $9.00 after I bit the bullet).
Even though I had received significant returns in the interim from steady dividends, the lesson learnt was to take the profits on capital gains when the share price is on the rise.
Holding for the "long term" simply means you will ride the rollercoaster up when they go up and will ride the roller coaster down when they go down.

I also had WDC when they converted to the stapled securities. Sold in 06 at only a moderate profit.

Just because the market is currently very volatile and has been acting on impulse news rather then long term outlooks, I don't think that warrants not being in a company because the market is selling it off. The underlying entity with your own research is what your investing in, not the short-term perception of the market (of course this is in regards to long term core holdings, if your chasing short term spec stocks obviously the market perceptions play a large role).

Kermit, good that you can discuss your views in such a reasonable way - it's appreciated.

We simply have a different investment philosophy. You seem to like the idea of 'owning a bit of a business' over a long term and see making maximum profit as very secondary.

I just don't see it that way. I want to see my capital growing.

You say "if you're chasing short term spec stocks.......": I've indeed chased a few of these in my time, rarely with positive results so I don't do it any more.

But what I do do, is take advantage of uptrends in solid, well managed companies, selling in significant downturns. e.g. sold my whole p/f in January 08 when the GFC was happening.

Maybe take a look at LEI, WOR, CPB, MND, WES charts for 2009 and compare with same for WDC. Unless you have some passionate interest in shopping malls, I just don't know why you wouldn't prefer to own a stock which is going to give you a decent capital gain.

It all depends on your investment strategy, but if your looking at a large company like WDC when your aggresive spec investor then obviously your strategy is off point already anyway. As a long term core asset, i think the underlying company is undervalued and over the long term you'd expect that the market realises that (once these tougher times continue to subside and volatility to company announcements lowers).

Again, it doesn't seem to me that I'm an 'aggressive spec investor' when I simply take advantage of a rising share price.

So many people who take a purely fundamental approach focus on the company 'being undervalued'. Sure, it might be, but given that it's market sentiment that moves the SP, isn't that something you accept and go with, rather than patiently waiting for the rest of the market to see the light on your undervalued company?

Again, it's interesting to have the discussion and I'm not being critical of your approach, it just rather puzzles me, given that I'm not arguing for some speccie miner where you could lose all your investment.