Scentre, the owner of nearly 40 Westfield branded shopping centers, has announced that it is maintaining its guidance for annual funds from operations and distribution. Despite the challenges posed by higher interest rates, Scentre’s malls have shown resilience.
Funds from Operations Expected to Grow
Scentre expects to achieve funds from operations of 20.75 Australian cents and 21.25 cents in the 12 months through December. This measure excludes depreciation, amortization, and gains on asset sales. If successful, this would represent a growth of up to 5.9% compared to the previous year.
Minimum Annual Distribution to Increase
The company also forecasts a minimum annual distribution of 16.5 cents, which is at least 4.8% higher than the previous year.
Impact of Rising Interest Rates
Retail property owners are currently facing a critical juncture due to the rapid escalation in interest rates. As fixed-rate mortgages taken out during the pandemic begin to expire, many households are experiencing a constraint on their discretionary income. This limitation impacts their ability to shop in physical stores.
Decline in Retail Sales Volumes
Official data reveals that retail sales volumes have declined for three consecutive quarters. This marks the first occurrence of such a decline since the global financial crisis in 2008.
Scentre Faces Challenges Amidst Slowdown in Spending
Scentre, a company that has been on a steady path to recovery from the pandemic, is now grappling with the threat of a slowdown in spending. While they have seen positive trends such as increased leasing deals, higher rent collection, and improved occupancy, the rise in interest rates has sparked concerns about rising debt costs.
In the first half of the year, Scentre reported a net profit of A$149.4 million, showing a significant drop of 69% compared to A$479.8 million in the same period last year. It’s worth noting that this decline includes property revaluation losses amounting to A$392.5 million.
Despite these challenges, there were still some bright spots for Scentre. Funds from operations saw a modest increase of 1.5%, reaching A$556.6 million within the six-month timeframe. Additionally, net operating income experienced a healthy growth of 10%, reaching A$971.9 million.
Under the leadership of Chief Executive Elliott Rusanow, who took over from Peter Allen nearly a year ago, Scentre has implemented a successful strategy resulting in strong collaborations with business partners. This has led to impressive annual sales figures of $27.8 billion by June 2023, which reflects an increase of A$4.9 billion or 21.6% compared to the same period in 2022. Such tremendous growth represents yet another record-breaking achievement for Scentre’s extensive portfolio.
Scentre has maintained high occupancy levels, hitting 99.0% at the end of June, compared to 98.8% during the same period last year. Furthermore, they completed a total of 1,567 lease deals within the six-month period.
Amidst these developments, Scentre’s gross rent collection amounted to an impressive A$1.33 billion over the six-month period. Additionally, their gearing ratio, a measure of debt relative to equity, stood at 28.0% by the end of June, highlighting a reasonable level of financial stability.
While challenges lay ahead for Scentre, they remain committed to navigating these obstacles in order to secure their continued recovery and success in the post-pandemic landscape.