Westfield owner Scentre says shopping centres will bounce strongly out of lockdowns
Westfield’s local owner Scentre says Australia will follow the offshore experience and shoppers will race back once lockdown restrictions lift.
Peter Allen, who runs Scentre Group’s local Westfield empire, expects that shopping centres will come back once vaccination levels rise and governments re-open the economy, in line with the resurgence of the sector in the US and Britain.
The upbeat take on a recovery came in the face of coronavirus outbreaks and the reintroduction of the Morrison government leasing codes that will make the current half tough for rent collections.
“When you look at the traffic flows that we‘ve had, when the restrictions ease our business really strongly rebounds, and this is what we’re going to be seeing,” Mr Allen said.
“We’ve got a government now which is focused on vaccinations, and therefore opening up the economy. Once everyone is vaccinated, this is going to give, similar to what we’re seeing in the US and the UK, consumers confidence to be able to get out and get about,” he said.
The Scentre boss cited the shift in mindset away from looking at the number of cases to vaccination rates, which provided a kind of “light at the end of the tunnel” for consumers and retailers.
Mr Allen said that the company had 30 to 40 per cent of stores open across its portfolio and is bullish about them coming back as retailers can also see a way out and he expects centres to go back to at least pre-pandemic levels.
Mr Allen said that centres should fully reopen once they had met health criteria with a national approach to an economic restart best. “We’re going to have to one day realise that we’re one Australia,” he said.
Scentre shares leapt by 6.7 per cent to $2.72 as it reported a 28 per cent jump in operating profit to $460.1m for the six months to June 30, even as the shopping centre giant battles the impact of lockdowns in Sydney and Melbourne.
The result is a dramatic turnaround from the depths of lockdown as Scentre’s net profit came in at $400.4m, well ahead of the $3.6bn loss this time last year as it wrote down the value of its shopping centres.
The company generated Funds From Operations of $463.4m, which equated to 8.94c a security, and will pay a distribution of 7c a security.
Mr Allen said the results showed the resilience of its platform and also pointed to the ability of shopping centres to bounce back. “We have delivered strong operating performance even with a number of government restrictions in place,” he said.
“In those locations impacted less by lockdowns, we have seen trading conditions better than those experienced in the first half of 2019.”
“The first six months has highlighted the fundamental strength of our business and its ability to rebound when restrictions ease. While we are currently operating through a period of government restrictions in key markets, we are confident in the ability of our business to perform,” Mr Allen said.
Scentre collected $1.2bn of gross rent during the first half of the year, up 37 per cent or $325m from last year, when the pandemic struck. “Visitation rapidly rebounded when restrictions were eased,” Mr Allen said.
The group stuck to its target distribution of 14c per security for 2021, based on the assumption that the current government restrictions substantially ease by the end of October. This was up 28 per cent but missed market expectations while the distribution was slightly above.
Mr Allen said that annual sales through the Westfield platform were $23.4bn and during the first half of 2021, total sales excluding cinemas and travel exceeded total sales in the first half of 2019, even though there were a number of lockdowns during the period.
“We are focused on long-term growth, leveraging the strength of our core business by becoming essential to people, communities and the businesses that interact with them. We want to be the first choice for where people spend their time outside of home and work,” he said.
Scentre has adjusted to the pandemic by diving more into e-commerce with a permanent click and collect service to be launched in this half and its membership program Westfield Plus has grown to more than 1.9 million members, up by 1.4 million since June last year.
The company said that during the half it supported small and medium size retailers to mitigate the short term cashflow impact on their business during the pandemic through rent deferral.
Scentre has $5.7bn available liquidity and flagged that it could consider acquisitions to fill out its portfolio in areas where it was not represented. The company is viewed as a key bidder for stakes in Sydney’s Macquarie Centre and Pacific Fair on the Gold Coast as their management may come up for grabs.
The group’s cash collection was closer to 100 per cent in the half, well off the collapse to 70 per cent in the first half of last year. Total moving average turnover growth edged up 0.9 per cent and specialty stores grew at 2.3 per cent.
Jarden analysts said the first half earnings recovery highlighted the earnings growth potential beyond current lockdowns, even if market forecasts for 2021 were likely to come down and distribution guidance could prove optimistic.
“However, after the significant underperformance this year, the stock is trading at a 30 per cent discount to net tangible assets and offers a 5 per cent dividend yield, even if lockdowns are not eased until late December, with significant upside risk beyond this,” Jarden said.
Morgan Stanley said that Scentre’s asset values were steady at $33.64bn, against $33.56bn at the end of last December, with the capitalisation rate unchanged at 4.89 per cent.
The analysts said rent collection was “seemingly good” at $200m a month, although they estimated this would have included $50m-$100m of trade debtors outstanding from 2020.
Scentre completed 1,515 lease deals during the half, including 619 new merchants. Leasing spreads on the specialty deals were -8.7 per cent.
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