Melbourne, Feb 27 - Westfield Group, the world's top shopping mall owner, reported a 16 percent rise in second-half profit, driven by rental growth at its Australian malls and hedging gains.
Despite weaker retail conditions in the United States, where Westfield has almost half of its 118 shopping malls, the company said it expected earnings per share growth in 2008 to match the 6 percent it achieved last year, excluding currency shifts.
Managing Director Peter Lowy was cautiously optimistic on the performance of the group's U.S. malls and the outlook for its UK developments, including the White City mall in west London, due to open before Christmas this year.
"The current slowdown has not materially affected our business. It hasn't materially affected leasing, it hasn't materially affected development or development returns," Lowy told Reuters.
"But if the slowdown happens for an extended period of time, then it will affect leasing, it will affect the margins, and it will affect some of those returns."
Westfield shares rose 1.9 percent to A$18.01, after dipping to a low of A$17.01 after the result was released.
Its shares have held up better than the listed property trust sector since mid-December, falling 18 percent against a 26 percent fall in the sector since Centro Properties Group revealed it was struggling to refinance debt.
"They are expensive relative to their peers, but the market does not care as much about valuations as liquidity and safety. And they have one of the best portfolios," said Steven Hiscock, managing director of fund manager SG Hiscock & Co.
Westfield, which has interests in Australia, New Zealand, the United States and Britain, said it expected to pay an unchanged distribution of 106.5 cents in 2008, looking to reinvest some earnings in mall development projects.
U.S. BUFFERED
Westfield's second-half profit rose 16 percent to A$1.06 billion ($990 million) including hedging gains. Annual net operating income rose to A$1.786 billion in calendar 2007 from A$1.651 billion a year earlier.
Net profit fell 38 percent to A$3.44 billion as property revaluations in 2007 added up to much less than the year before.
Net operating income growth from malls open for more than a year rose 5.6 percent in Australia and New Zealand and 4 percent in Britain.
Income growth from its malls in the United States, where Simon Property Group is its biggest rival, slowed to 2.7 percent from 3 percent a year earlier.
Lowy expected about the same growth rates this year in Australia and New Zealand and in the United States, and expected occupancy in the United States to be flat to slightly higher than the 94.1 percent occupancy it had at the end of last year.
"Obviously the U.S. environment is softer and the retailers are feeling that, and the industry's portfolio lease levels will probably be impacted by that," Lowy told analysts.
But he said Westfield had some buffer, given that more than half its U.S. malls are on the west coast, where markets are stronger than in the rest of the country, and given the investment it has made in sprucing up its properties.
Westfield raised nearly A$9 billion last year, partly through a share and bond sale, cashing up before the credit crunch set in to help fund more than A$10 billion worth of mall developments it plans to start over the next three years.
Allaying investors concerns about potential project delays, Lowy said the group would begin around A$4.5 billion worth of development work this year, including at Stratford City in east London, near the 2012 Olympics site.
That's a much higher level of work than the A$1.5 billion to A$2 billion worth of work it normally does in a year.
Development projects are Westfield's most profitable business, with yields of around 9 to 10 percent. ($1=A$1.07)