This article is from the Australian Property Journal archive
AUSTRALIA’S largest retail landlord, Scentre Group, will continue looking to enhance its Westfield shopping centres to fend off the impending entry of Amazon to the country.
It also announced its first new development in 12 years, Coomera on the Gold Coast.
The group posted an interim profit of $1.412 billion, with $638 million in funds from operations at 12.01 cents per security, up 3.5%, and distribution increase of 2% to 10.86cps.
“Scentre Group is very pleased with these first half results, which highlight strong operating performance and reflect the benefit of our strategic focus on delivering long-term sustainable growth through our ability to curate an exceptional product mix and deliver extraordinary retail, lifestyle and entertainment experiences for our customers,” chief executive officer Peter Allen said.
Comparable sales growth in retail sales was 1.1% over the six months, with majors down by 0.9%, mini-majors up by 2.9% and specialties down by 1.5%. Over the months the end of June sales were up by 1.0%; majors were down by 1.0% and mini majors and specialties were up by 2.7% and 2.0% respectively.
Total sales moving annual turnover was $22.9 billion. Specialty store MAT growth was 2.0%, and average specialty stores sales $11,250 per sqm, and rent $1,615 per sqm. Occupancy cost was 17.6%, and comparable NOI growth 2.6%. Nearly 189,000 sqm of leases were completed across 1,394 deals.
Department stores took the biggest hit by category over the half, with comparable sales growth down by 5.6%. Leisure was down by 4.2% and cinemas 2.1%. Growth was led by technology and appliances with 11.5%, and 14.1% over 12 months, followed by retail services with 5.0% and food retail with 4.1%.
Scentre’s profit for the half included $929 million in revaluations gains, underpinned by growth in operating income and the completion of the $355 million Westfield Chermside redevelopment.
The redevelopment includes a new fashion precinct over two levels, including international mini majors H&M, Zara, Uniqlo and Sephora, as well as an additional 60 fashion, health & beauty, homeware and services retailers. Adjacent is a new entertainment, dining and leisure precinct, with 25 new restaurants and cafés and laneway, and a gym and childcare facilities and Kingpin and iFly entertainment centres.
“We are particularly excited about the new incubation hub, which is a bespoke area of retail space designed specifically for local innovators and entrepreneurs to build their businesses within our premium retail environment. We believe that fostering new retail is a critical part of ensuring the long-term success of our industry.” Allen said.
Around $900 million in developments began in the half, with expected total returns of more than 15%.
Scentre reconfirmed its forecast FFO growth for the 12 months ending 31 December 2017 of around 4.25% and forecast distribution growth of 2% to 21.73 cents per security.
Scentre also announced a $470 million project – of which it has a $235 million share – at Coomera, which will deliver a 59,000 sqm regional centre with Coles and Woolworths, Even Cinemas Complex, Kmart and Target, 140 specialties and an alfresco leisure and dining precinct.
The group said it would continue to grow distributions at a lower rate than earnings growth until it reaches a payout ratio at 85% of FFO, at 2% per annum, and then in line with FFO growth.
“The new target payout ratio enables the group to invest additional retained earnings into our business with a development pipeline in excess of $3 billion with expected total returns of more than 15%. This change will over time increase the Group’s growth in FFO and reduce our future debt financing requirements,” Allen said.
S&P Global Ratings said A/Stable/A-1 rating of Scentre was unaffected, and that the lower reliance on debt funding will increase its financial flexibility.
“Scentre Group currently operates within an intermediate financial profile, which remains comfortably within our expectations for the current ‘A’ rating. Specifically, we expect its FFO to debt to be greater than 9% and debt to EBITDA less than 7.5x,” it said. “We continue to assess the group’s liquidity profile as strong, with undrawn facilities of about $2.7 billion and no debt maturities until July 2018.”
The group’s gearing was 33.9% within its stated target range of between 30% and 35%.
Australian Property Journal
