Scentre rides Amazon ripples with profit lift
Mall owner Scentre Group said it was on target to increase funds from operations by around 4% this fiscal year, after reporting an improved half-year net profit driven by valuation gains on its property portfolio.
Scentre, which owns and operates nearly 40 Westfield-branded shopping centres, reported a net profit of $1.46 billion in the six months through June. That included $966 million of valuation gains.
Funds from operations — a smoothed measure of operating cash flow that excludes depreciation, amortisation and gains on asset sales — rose by 3% to $657.2 million in the six-month period. The company also reaffirmed its guidance for an annual distribution of 22.16 cents per security.
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Scentre’s result may help soothe concerns among investors at the impact of slowing consumer spending in Australia and the competitive threat from eCommerce specialists like Amazon.com on retail-focused property stocks.
Management recently delivered a vote of confidence to bricks-and-mortar retail with the $720 million purchase of a 50% stake in the Westfield Eastgardens mall in Sydney, achieved at a 4.25% capitalisation rate — the annual net income produced by a property divided by the purchase price — that was in line with other recent transactions in the sector.
The Eastgardens deal illustrates a broader strategic shift by real-estate investment trusts toward malls with the potential to add apartments or more international stores, restaurants and entertainment options. It also highlights the dilemma facing management — whether to use surplus cash to bolster shareholder returns, such as by accelerating distribution growth, or double down on retail despite industry headwinds.
Scentre today said it was keeping a previously announced $700 million share buyback program open, even though it has bought back just $30 million so far.
Some analysts worry that Scentre’s balance sheet remains stretched. Macquarie recently suggested that Scentre could sell stakes in some malls to boost flexibility, viewing such a strategy as unlikely to dent earnings much given recent pricing of deals. It named five assets as the likeliest candidates for outright divestment or a partial stake sale via a joint venture with a third party, including the Burwood and Chatswood malls in Sydney.
Scentre’s gearing at the end of June stood at 31.9%, versus 32.1% a year earlier.
A positive development was an acceleration in specialty in-store sales growth to 2.1% in the six months through June. Unlike a department store, a specialty outlet is one that focuses on a particular niche, such as clothes or electronics.
“High quality retail space that enjoys high traffic flow is in demand with occupancy across our portfolio at more than 99.5%,” says chief executive Peter Allen.
“The physical store is influencing sales across all channels including in-store, online and marketplaces as well as enabling ‘click and collect’ and last mile distribution.”
– Dow Jones
This article originally appeared on www.theaustralian.com.au/property.
