Scentre and Stockland tipped to tap market

Westfield owner Scentre Group is considered the most obvious real estate candidate to raise equity. Picture: AFP

Parties are said to be asking Scentre Group almost every day whether it plans to raise equity and the answer is always the same resounding no from the Westfield shopping centre owner.

Scentre Group is seen as the most obvious candidate in the real estate space to raise equity, after COVID-19 trading shutdowns sent its retail tenants reeling.

But besides Scentre, the other company that is seen as one that will need to tap the market is Stockland.

The group had $1.6bn of available funds in April and had $4.2bn of borrowings in December, with a 26.1 per cent gearing level.

It has an $8.35bn market value and some believe that it may be hit on all fronts.

Stockland has malls in locations such as Wetherill Park and Merrylands and Baulkham Hills in western Sydney, where a greater portion of the population would probably be affected by the government’s JobKeeper and JobSeeker benefits that will cease in late September.

No one yet knows the extent of the fallout on the office sector, where Stockland also has exposure.

There are some predictions that the office landlords could be even harder hit than shopping centre owners, with potential protests over rents paid by tenants that will need more space to accommodate their workforce to comply with social-distancing measures.

Compounding matters for Stockland — the country’s largest residential developer — is that it has at least 70,000 lots of unsold land inventory.

Sentiment continues to sour towards listed landlords as investors become increasingly nervous that they will have to carry heavy costs linked to the fallout on their tenants from COVID-19.

Vicinity Centres tapped the market this week for $1.4bn at $1.48 per share after management offered no clear indication that such a move would be needed.

Vicinity withdrew earnings guidance, its dividend payment and share buyback program in March.

Now Scentre Group investors are struggling to take the company at its word.

The chief financial officer of Scentre, Elliott Rusanow, is said to have been against a raise because the market is undervaluing the stock and the group has recently tapped the debt markets.

An equity raising would be a first for Scentre.

Apparently, Scentre is playing hard ball with its tenants, saying that they could be replaced with others if they are unhappy with the terms.

However, some are sceptical that in the current environment other tenants can be found to fill up space at the same rates.

The thinking is that the raise by Vicinity, which has indicated its property valuations are down by between 11 per cent and 13 per cent, or $1.8bn-$2.1bn, could be just the start of the grab for cash by real estate investment trusts.