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WRT - Westfield Retail Trust

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I should point out though, just so people arn't mislead, the rent for long term leases is reviewed and indexed periodically. You don't actually pay the same price in the 20th year as you did in the first year due to indexing in line with the CPI. You get the idea though.
 

nulla nulla

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Although WRT dipped down to $2.87 recenly it seems to be finding support arround the $2.90 level. The close at $2.88 on Friday 6 September 2013 would have tempted a few traders/investors and the 3% gain this week to close at $2.98 was a quick return.

wrt 2013-09-13.png

Only problem with the A-REIT shares (particularly the ones in Retail) is trying to determine whether the share prices are being propped up by the share buy backs occuring or whether the prices are being held down by the buyl/sell strategies of the brokers doing the buy back? Meanwhile the volitility can be worth following for the attentive. Volumes have been good in the last 4-5 weeks as well. As always do your own research and good luck. :)
 

skc

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The performance of the REITs have really diverged. All the retail REITs (CFX, CQR, GPT, SCP) are close to the lows, with the exception of WRT which sold some assets above book value in a recent transaction. the office REITs are kind of hanging in there, while the ones with residential exposure (SGP, MGR, ALZ) are enjoying better support.

AFR is reporting that retail rents have been decreasing on lease renewals, whil the weak report by Myers last week probably didn't help either.

The same thing happened a couple of years ago when it felt like the end of physical retail was about to happen... but then the market went on a yield surge that brought all REITs up to <5% yield. But it appears now there'd be some divergence between different sub-sections in the REIT space... and a blanket buy-on-dip approach may not work as well as before.
 

nulla nulla

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WRT dropped 1.95% today, well above the A-REIT sector drop of 1.16%. The sell down may have been influenced by the storm damage to Hornsby Westfield Shopping Centre. It probably wouldn't hurt for Westfield Retail Trust to put out a release informing the market of the extent of the damage and the likely impact on earnings etc.
 
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The performance of the REITs have really diverged. All the retail REITs (CFX, CQR, GPT, SCP) are close to the lows, with the exception of WRT which sold some assets above book value in a recent transaction. the office REITs are kind of hanging in there, while the ones with residential exposure (SGP, MGR, ALZ) are enjoying better support.

AFR is reporting that retail rents have been decreasing on lease renewals, whil the weak report by Myers last week probably didn't help either.

The same thing happened a couple of years ago when it felt like the end of physical retail was about to happen... but then the market went on a yield surge that brought all REITs up to <5% yield. But it appears now there'd be some divergence between different sub-sections in the REIT space... and a blanket buy-on-dip approach may not work as well as before.

You think there might be some surprises, further takeovers, profit shocks going forwards (for REITs in general)? How do you see it playing out? Thanks.
 
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WRT dropped 1.95% today, well above the A-REIT sector drop of 1.16%. The sell down may have been influenced by the storm damage to Hornsby Westfield Shopping Centre. It probably wouldn't hurt for Westfield Retail Trust to put out a release informing the market of the extent of the damage and the likely impact on earnings etc.

Perhaps. Another explanation is that a number of REITs are being sold off as domestic PSFs are being asked to fund a number of capital raisings at present. There are a number of IPOs that are being bookbuilded soon and CapitaLand has just asked investors to stump up ~$0.4bn for part of its stake in ALZ. Other REITs are being sold off to fund this and the retail REITs are being hit the hardest as there is limited prospect for M&A in that subsector.
 

skc

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You think there might be some surprises, further takeovers, profit shocks going forwards (for REITs in general)? How do you see it playing out? Thanks.

Probably come over the next 2-3 reporting cycles when market start to realise fully that dividend growth will not be there anymore. If there's no dividend growth, no one wants 6.5% yield return with equity-like risks. They'd want 8-8.5% (and that can only happen by the share price coming down). And if interest rate was to rise, then the sector will give back much of the gains from the past 18 months. That's a potential downside scenario but I don't think it will be a shock and awe event.

Perhaps. Another explanation is that a number of REITs are being sold off as domestic PSFs are being asked to fund a number of capital raisings at present. There are a number of IPOs that are being bookbuilded soon and CapitaLand has just asked investors to stump up ~$0.4bn for part of its stake in ALZ. Other REITs are being sold off to fund this and the retail REITs are being hit the hardest as there is limited prospect for M&A in that subsector.

Yes quite possible. I couldn't think of a good reason for the REIT's underperformance today.
 

nulla nulla

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Perhaps. Another explanation is that a number of REITs are being sold off as domestic PSFs are being asked to fund a number of capital raisings at present. There are a number of IPOs that are being bookbuilded soon and CapitaLand has just asked investors to stump up ~$0.4bn for part of its stake in ALZ. Other REITs are being sold off to fund this and the retail REITs are being hit the hardest as there is limited prospect for M&A in that subsector.

Good point re the portfolio reweighting to free up cash for the likes of the Australand shares being sold through the Capitaland book build. No doubt it could impact on the likes of Dexus & GPT more so as fund managers elect to avoid the uncertainty of future value in these two as they slug it out for CPA. ALZ would appear more stable with better future prospects as the residential sector picks up.

Today will be interesting to see whether any sell down (sell out) continues or there is a rebound to some extent.
 

nulla nulla

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The performance of the REITs have really diverged... and a blanket buy-on-dip approach may not work as well as before.

True, I bought a couple of dips in May/June and ended up with a captial loss tax offset for some off the profits for the fiscal year. Some of the shares are still in the red. Mind you I wish I had the extra dollars to top up on WRT and a few others in the Thursday sell down. A nice bounce on Friday. Major fly in the ointment at the moment is the Aud$, in my humble opinion.
 

skc

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True, I bought a couple of dips in May/June and ended up with a captial loss tax offset for some off the profits for the fiscal year. Some of the shares are still in the red. Mind you I wish I had the extra dollars to top up on WRT and a few others in the Thursday sell down. A nice bounce on Friday. Major fly in the ointment at the moment is the Aud$, in my humble opinion.

Are you not concerned with WRT signing new leases at 6% lower than expired leases?
 

nulla nulla

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Are you not concerned with WRT signing new leases at 6% lower than expired leases?

Aware of more than concerned about. I work/worked in a field that regularly deals/dealt with smaller tennants of Westfield. The concensus among the clients was that the rents were too high and that Westfield didn't care as there were potential tennants lining up to replace anyone that fell by the wayside. This was seen as very cavalier by the tennants as it failed to recognise that rent releif often enabled more to be spent by the tennant on promotions of their store/product etc and Westfields was a winner from this on the levy they apply to turnover. Store closures meant down time for Westfields as the replacement came in, also defaulting tennants were often of the midnight runner departure, leaving Westfields trying to recoup arrears and fees etc after the event.

Westfield these days uses the sales data obtained from tennants to identify the type of store that does well from the type that struggles. From this the weighting of store type is changing enhancing the returns for Westfield. Additionaly Westfield is encouraging new specialty foreign stores with better incentives than allowed for the locals to encourage foot traffic which benefits all stores in the Shopping Centre, Hopefully more spending, hopefully more turnover levies etc. The rent reductions are a bit like giving with one hand so they can take with the other. Spending is picking up. Shoppers are expected to spend $30 Billion in the lead up to xmas/new year. Westfield and the other A-REIT Retails stores will benifit from this.

I still see opportunities in A-REIT Retail Shares, more from trading the swings as they find their "market value" range than from long term investment. Mind you, some of them like WRT are still paying an attractive dividend/yield.
 

skc

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Additionaly Westfield is encouraging new specialty foreign stores with better incentives than allowed for the locals to encourage foot traffic which benefits all stores in the Shopping Centre, Hopefully more spending, hopefully more turnover levies etc. The rent reductions are a bit like giving with one hand so they can take with the other.

Thanks for the insight. I didn't think of the trade-off between headline lease rates vs turnover levy.
 

nulla nulla

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I like the way the market drove the Friday close up to $3.05 after the share price was pretty much held down arround the $3.03 area throughout the day. The WRT share price is a bit incongruous when you consider the rally in CFX and some of the other Retail shares. Maybe the Market thinks the consumers aren't going to shop at Westfields in the lead up to xmas?

wrt 2013-11-29.png

As always, do your own research and good luck. :)
 

nulla nulla

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It would appear that the only thing certain with Westfield shares is "Nothing is certain". After jumping in the close on Friday to $3.05, WRT opened higher on Monday, tapped $3.07 then promptly got pushed down to yesterdays close of $3.00.

Exasperating to say the least. The whole A-REIT sector seemed to be pushed down on Monday, even more than the rest of the All Ords. Most of the A-REIT's appeared to stabilise or only drop a small amount on Tuesday and WRT looked like it was going to test $2.97 again this week.

Todays' announcement of the proposed restructure of WDC & WRT is a big surprise (to me anyway). WRT share holders look like getting:
1. The 2H 2013 dividend of around $0.10 per share in February 2014;
2. The 1H 2014 dividend of around $0.10 per share in June 2014;
3. A further "Return of Capital" of $0.285 in May/June as part of the restructure(Is this right?); and
4. Their share holdings with the restructure will drop to 918 Scentre shares for every 1000 WRT shares held in May/June.

Promoted as being equivalent to a "pro-rata buy back of WRT securities at $3.47 (equal to the WRT nta) and a 14% premium to the present share price. Presently in a trading halt until 11.00am.

The only two negatives I can see initially in the proposal are that gearing in WRT will increase to 38.2% and with the increase distribution of Scentre shares to WDC share holders, the nta of Scentre will be reduced to $2.81. For WRT holders that looks like a drop in the number of shares held, and a drop in the value of those shares by $0.66 for which they receive dividends of roughly $0.20 and a capital return of $0.285. Seems that they are worse off? What am I missing?


I wonder where the price will end up at 4:10pm?
 

skc

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Promoted as being equivalent to a "pro-rata buy back of WRT securities at $3.47 (equal to the WRT nta) and a 14% premium to the present share price. Presently in a trading halt until 11.00am.

The only two negatives I can see initially in the proposal are that gearing in WRT will increase to 38.2% and with the increase distribution of Scentre shares to WDC share holders, the nta of Scentre will be reduced to $2.81. For WRT holders that looks like a drop in the number of shares held, and a drop in the value of those shares by $0.66 for which they receive dividends of roughly $0.20 and a capital return of $0.285. Seems that they are worse off? What am I missing?


I wonder where the price will end up at 4:10pm?

A complicated deal but judging by the fact that WDC is up 6% while WRT is up 4%, the spoils are shared quited evenly. A bit of asset reshoval and over $2B in market cap is "created". I can't be certain this is a great deal for WRT... the Lowy's sold out at $3.10 not long ago so that's probably as good a price peg as anything else.

The post-merger NTA is only $2.81. You get $3.47 for 92 shares (per 1000) cancelled so you end up with 918 shares of the new Scentre group. WRT has been trading at 10-15% discount to NTA, while WDC trades at 40% premium, so the new entity would trade at?? Propbably something like 1.05-1.1 would be my guess. This means a price of $2.95-3.1 per Scentre group.

I had a big short on WRT and was very happy to get out on the open at $3.05. I didn't know how the market would react so was just happy to exit without any real damage.

The closing price could be anywhere...
 
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So, am I understanding this correctly that WRT will now have exposure to the development/management side of the business rather than just being a straight up REIT?
 

skc

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So, am I understanding this correctly that WRT will now have exposure to the development/management side of the business rather than just being a straight up REIT?

Yes that's what it appears. It's all a bit of a joke, all these asset shuffling under the Westfield banner.

Back in the days there were 3 Westfield entities along the geography and landlord/developer lines. They were merged into a single entity some time ago (about 10 years from member). Then WRT spun out in 2010, and now they split the head company again back along geography lines, and putting the development business back in WRT entity. Whatever rationale they applied to spinning out WRT in the first place, just got thrown out of the window.

What have they achieved after all that and were there any real value created aside from fees to advisors/bankers etc?
 
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Yes that's what it appears. It's all a bit of a joke, all these asset shuffling under the Westfield banner.

Yeah it's too confusing for me. It's basically just a family company and you get dragged along for the ride.
 

nulla nulla

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Looks like the market has looked through the smoke and mirrors and assessed that the deal favours the WDC share holders at the expense of the WRT share holders. Apart from the 82 shares (1000 WRT to 918 Scentre) that WRT holders will receive $285 for (which is the only shares that they receive the equivalent nta value of $3.47 for) by my calculations the WRT share holders will be much worse off.

For their 1000 shares with an nta of $3.47 ($3,470.00) they are going to receive 918 shares with an nta of $2.81 ($2,810.00) and a kick along of $285.00.

$3,470.00
($2,810.00)
($ 285.00)
$ 375.00 Shortfall ?

Even if you were to allow for the two (2) distributions 2H 2013 & 1H 2014 of roughly $0.20 ($200.00 per 1,000 shares) which you shouldn't have too, WRT share holders are still $175.00 worse off under this deal? As I type WRT has fallen back to $3.01-$3.02 after bouncing off $3.00 an increase of half of one percent on yesterdays close, WDC is up $0.395 or 3.81 percent on yesterdays close.

How can the "independent" directors support this?
 
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