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Westfield says business solid despite mixed sales results

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Westfield Group says its shopping centre business is performing well despite a mixed sales performance in the three months to September.

But analysts are worried that retail sales could remain subdued and lead to slower rental growth in the long-term.

Westfield confirmed its full year financial guidance on Tuesday and said it still expected to pay a distribution of 48.4 cents per security for calendar 2011.

Chief executive Steven Lowy said the company had made good progress in integrating its new acquisitions in Italy and Brazil.

“Overall our business continues to be in solid shape,” Mr Lowy told analysts on Tuesday.

He confirmed Westfield’s forecast of funds from operations (FFO) of between 64 and 65 cents per security in 2011, and operational segment earnings of 74.6 cents per security.

Figures released by the company show retail sales at its Australian shopping centres were down by 1.7 per cent in the three months to September 30.

Total sales for the group over the past 12 months were $21.5 billion, up 0.1 per cent on the previous year.

The value of new developments would rise to $1.25 billion in 2012 and to $1.5 billion in 2013.

“At this stage, we have a high degree of confidence with near-term project commencements,” Mr Lowy said.

He said the company was continuing with pre-development activity on $11 billion worth of development work, and expected to start more than $750 million of new projects in 2011.

Westfield’s major Australian stores experienced a 3.8 per cent decline in sales, specialty stores had a 1.4 per cent decline, while `mini majors’ had a 3.2 per cent rise in sales in the period.

Despite the closure of Colorado, Angus and Robertson and Borders stores, all of the empty shopping centre space had now been leased.

Mr Lowy said the Australian portfolio was very solid, with nearly full occupancy, good rental growth and high numbers of specialty sales.

He expects comparable net operating income (NOI) growth for this year of around four per cent.

But Morningstar equities analyst Adrian Atkins said Westfield might not be able to continue charging high rents in Australia over the long-term as retail sales decline and online retailing gains momentum.

“Rental growth will have to be slow and things aren’t going to be as good as they were for the last 10 years when households were leveraging up and spending a lot more,” Mr Atkins said.