Scentre dumps distribution on as virus woes hit Westfield malls

Local Westfield owner Scentre will not pay a half-year dividend – a move that could be replicated by other hard hit mall owners.

Shoppers have started to reappear with easing of some coronavirus restrictions. Picture: David Clark

Scentre Group, the owner of the local Westfield mall empire, will not pay a dividend for the first half of 2020, in a move that could be replicated by other hard hit mall owners.

"Given the uncertainty regarding the pandemic, its duration, the economic impact and the timing of operating cash flows for the Group, the Group has determined to not pay an interim distribution for the half year period ending 30 June 2020. The Group believes that retaining this capital will further strengthen its financial position and ability to continue to deliver long term returns to its securityholders," Scentre said in a statement to the ASX on Monday.

Retail property owners had earlier pulled earnings and distribution guidance when the coronavirus crisis struck, but paying out income generated by properties has underpinned the Australian real estate investment trust (REIT) sector.

The move not to pay a distribution this half is the first by a major REIT, and follows in the wake of some major banks, which have also determined not to pay dividends as a result of the crisis.

It also reflects the dire state of shopping centres, with a recovery only just beginning and disputes about rental payment festering between landlords and major chains, as smaller tenants struggle to make payments.

Scentre reported on Monday that it had been a hard-hit in March, with specialty store sales down by a quarter on a comparable basis against the same time last year, with retail operators warning that April could be worse.

The company has also deferred a Sydney development project but will continue other works, including the downsizing of a Myer store at the centre in the ACT, while reviewing other expansions.

Scentre's report reveals a stark divide within commercial property portfolios.

Industrial and logistics property owners, which are on track, while office owners portfolios are also proving resilient. But mall owners that are under the gun.

Scentre rival Vicinity Centres also pulled its earnings and distribution guidance in March, citing the uncertainty around the impact of COVID-19, but is yet to indicate whether it will pay a distribution.

Open for business

Scentre Group chief executive Peter Allen said all Westfield centres remained open throughout the pandemic and that the company had maintained business continuity and economic activity.

In Australia, 57 per cent of retailers representing 70 per cent of gross lettable area are open in Westfield centres, with more retailers scheduled to reopen over the coming weeks. Based on the latest guidance from the national cabinet, Scentre anticipates the majority of the remaining stores will reopen soon.

Customer visits bumped up in January and February but fell in March and April to a low of 39 per cent of the previous year’s level. But the mall operator is hopeful about a recovery.

"As more retailers have reopened, we have seen an increase in customer visitation in recent weeks and most significantly over this last weekend there was double the level of visitations from five weekends ago," Scentre said.

While the talks about rents are happening behind the scenes, the company said it would follow the national leasing code unveiled by the Morrison government. It has 2,600 small to medium size retailers, making up about 30 per cent of rental income.

Scentre said it was "in discussions" with tenants, on a case-by-case basis, to determine "appropriate ways we can assist with their potential cashflow issues". But it added that contractual lease obligations remained in place.

Retailer in-store sales were growing before the crisis but were hard hit in March as COVID-19 government restrictions came in with total comparable specialty sales down by 25.9 per cent.

Department store slump

In an ominous sign for Myer and David Jones, department stores were off by 38.9 per cent in the month and cinemas were shut down by 46.1 per cent as they were closed down. Suffering categories included fashion, that fell 38.9 per cent, dining that was off 38.6 per cent as food courts closed, and footwear, that fell 41.2 per cent as the consumers pushed back purchases. By contrast, supermarkets jumped by 20.6 per cent.

Scentre has undertaken job cuts, with more than 60 per cent of its development team exiting, and has cut top salaries by 20 per cent. The mall owner has liquidity of $3.1bn after announcing new bank facilities last month.

Jefferies equity sales team said that the result was okay but the March numbers were missing all the retailers who were shut. "Scentre has weak balance sheet and a 20 per cent decline in asset values for June will see gearing [go] from 33 per cent to 41 per cent," the broker said, saying that rents need to adjust down.