Westfield malls come back as customers chase good times

Scentre Group, the Westfield owner, says that visits are up as it is offering more than shopping.

Scentre Group, owner of the local Westfield mall empire, is riding the customer surge back into big malls as chief executive Peter Allen delivered his final results at the helm of the company.

The property veteran is handing over to chief financial officer Elliott Rusanow as the landlord bounces back from the depths of the pandemic strongly with customer visits up by 5.1 per cent despite the Covid-19 outbreaks.

Big malls still are under pressure but specialty tenants are performing well and some are again looking to expand as consumers are spending up even in the face of higher interest rates.

Westfield had more than 277 million customer visits in the year to date and expect to hit about 500 million this year across its 42-strong network.

“We’ve grown customer visitation, portfolio occupancy, rental income and cash collection resulting in strong profit growth for the half,” Mr Allen said. “I don’t think it is revenge spending,” he added, pointing to the ongoing rise in spending by consumers, as well as the attraction of and new entertainment and leisure facilities.

In the first half of the financial year, the centres had more than $12bn of sales – an $800m jump on the first half of 2021 and $500m more than the first half of 2019 before the pandemic struck.

Shoppers in Westfield at Bondi Junction in Sydney. Picture: Flavio Brancaleone

Scentre’s interim result was an operating profit of $540.5m, which equated to 10.4c ar security, a 17.5 per cent rise on the first half of 2021. Funds From Operations lifted 18.3 per cent to $548.6m – 10.6c a security.

Portfolio occupancy bumped up to 98.8 per cent and the landlord struck 1,579 lease deals, with leasing spreads improving significantly, although they were still negative at 3.9 per cent. The leasing introduced 108 brands to the centres and overall average rent across the entire portfolio has increased $5 a square metre since June last year.

The star turn were specialty stores, which represent 60-70 per cent of the space, where rent escalations were 5.6 per cent in the half which reflects these leases having average annual rent escalations of CPI + 2 per cent.

Scentre generated a $479.8m profit on the back of property revaluation gains of $286.1m. The distribution for the first half will be $388.8m – showing 7.5c per security – a 7.1 per cent rise and will be paid on August 31.

The company’s Westfield Plus membership program has also grown to 2.75 million and it is also growing an aggregated click and collect service.

Scentre CFO and CEO-elect Elliott Rusanow noted the group was well-positioned as interest rates rise. “Our approach to capital management during the period has seen the group execute new and extended bank facilities of $2.6bn, including syndicated bank facilities of $1.4bn,“ he said.

Longer term, he flagged the potential for corporate transactions that could lift the group’s reach beyond the 20 million people near its centres but he does not expect action this year.

Scentre expects FFO to be above 19c per security for 2022, representing more than 14.2 per cent growth for the year. Distributions are expected to be at least 15c per security for 2022, representing at least 5.3 per cent growth for the year.

JPMorgan analysts Richard Jones said the previous guidance was earnings growth greater than the guided 5.3 per cent distribution per security growth.

Citi analysts said Scentre’s upgraded distribution per security guidance for fiscal 2022 of above 19c per security for 2022, representing more than 14.2 per cent growth for the year.

“This is up from 5.3 per cent growth indicated [in May] and consensus which is expecting 15.18c per security. The key operational reasons for the improvement, in our view, are the pass-through of CPI + 2 per cent leases with surprisingly improving leasing spreads despite the strong rental growth,” Citi said.

Scentre closed 2.2 per cent, or 6c, higher at $2.84..