Scentre CEO Peter Allen cheers the fast and furious rebound in retail sector

Peter Allen, CEO of Scentre Group, which manages Westfield Centres in Australia, says ‘we are seeing strong demand for space across all our centres, including our Victorian centres’. Picture: Aaron Francis / The Australian

Lockdowns are now history in Victoria and NSW, and at Westfield shopping centres owned by Scentre Group, the rebound in foot traffic has been so fast and furious that CEO Peter Allen upgraded his full-year guidance on Tuesday.

Shareholders are to receive “at least” a 14c payout after rents collected from retailers exceeded expectations.

Melbourne, famous for running the world’s longest city lockdown is free. Allen says traffic is back to 90 per cent of normal in just the first week after lockdown ended on 28 October.

“And our retailers are continuing to pay us the level of rent because they knew they wanted to have those stores open as soon as lockdown ended. We are seeing strong demand for space across all our centres, including our Victorian centres,” he said.

Retail has a precious window: Christmas shopping and the January sales. Covid savings weigh heavy in pockets. Traffic numbers in non-lockdown states of South Australia, Queensland and Western Australia are now above where they were in 2019.

For most shoppers overseas travel is for next year. And hurrah! Bunnings and Officeworks will by joining Flybuys, the missing link for loyalty shoppers.

What is more, Australians are not just nipping in and out. They are returning to spend time at shopping centres, both for leisure and dining. Pre-Covid, Scentre had been building out the “experience”side of is centres.

NSW is back to 100 per cent seating at cinemas and James Bond’s aptly titled No Time to Die has its national release last week.

Problems with supply chain deliveries are also boosting bricks and mortar.

“Certainly my 21 and 23 year old daughters have been out there shopping because they are going out and want to get it now,” said Allen. “They don’t want to wait, they don’t know when it’s going to be delivered.”

The lockdown story for discretionary retail has been a near-death experience.

So to hear from Allen that from last April, Scentre’s occupancy rates fell from 99.5 per cent to 98.5 per cent seems remarkable. He says retailers have seen their way through, thanks to vaccination. “Kikki K went to administration about a year ago, it came out and went into administration again and has been bought out by another company because they have a product that the customer wants.

“Look at what Skroo Turner is doing at Flight Centre. He rationalised his store network across the portfolio and got to a position where he was able to hang on to then see out the pandemic.”

Big banks have gained kudos supporting consumers and businesses through loan deferrals and relief. Allen, as chair of the Shopping Centre Council, points out that his landlords supported SME retailers with more than $2bn in forgiven rent.

“Our security holders have given money to other retailers, to their security holders or owners as part of this SME support. That has helped a lot of people to stay in business and is why this occupancy has been maintained at 98.5 per cent” he says.

Scentre Group’s retail support in 2020 was $300m, but Allen says the impact is less in 2021 than 2020 and isolated to the lockdowns. So far in this year, Scentre has generated $1.8bn in cash from rental collections, about $200m more than the same period in 2020.

A big thematic of lockdowns and the rise of e-commerce is that investment funds have shifted from retail property into logistics and infrastructure.

But Allen says that is not the case for really good quality retail property.

“I think for secondary that’s probably the case. We look at our space as unregulated infrastructure and at transport modes where people want to get to.”

Where business remains weak is in the CBDs, empty of workers.

“They are certainly coming to Bondi,” said Allen. “But we’ve seen in Westfield Sydney, our traffic is great on the weekends but poor in the weekdays because of the number of office workers has been reduced.”

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Labour squeeze

Ross McEwan, who runs National Australia Bank, has for months been talking about the bounce back after lockdown. At Tuesday’s annual results he forecast a strong rebound for 2022 which NAB should ride well after announcing a cash profit of $6.56bn.

He says 18 months into the strategy plan the bank is ahead of where he expected.

NAB’s market share in both SMEs and agribusiness had grown with lending growth up 7 per cent.

The problem for the economy, which McEwan had flagged after a trip to the Northern Territory in April, is a shortage of workers.

“The number one issue for employers when I talk to them is ‘I can’t get workers’,” he told The Australian.

“Whether it’s the cafe across the road that has lost the students or just people not being available to work in Australia. It’s across every industry: the agricultural sector, manufacturing, entertainment, tourism. That’s our biggest issue that will inhibit growth the most.”

McEwen says the tight market will also push up wages over time, which he admits isn’t a bad thing. But to get businesses going again, he says Australia will need labour.

“There have been hundreds of thousands of people who have left Australia because they were on temporary or student visas that we need to get back into this economy as quickly and safely as we can.”

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Canadian gold

In yet another big corporate transaction this week, gold miner Newcrest is paying $3.8bn for the Canadian Pretium Resources.

“You never want to have to do M&A. You only want to do it when it suits you,” Newcrest CEO Sandeep Biswas told The Australian only last week where he also stressed that the whole philosophy of the miner was to generate returns to shareholders.

So what is it that suits the company so well that it has paid up at a 22.5 per cent premium? Undoubtedly the mine will immediately lift gold output to around 2 million ounces a year, satiating market grumblings about output growth.

But Biswas says he has never been about growth for growth’s sake. “There is this peculiarity in the gold industry where ounces are deemed more important than actual margin,” he said.

Biswas is doubling down on Canada where Newcrest already owns the Red Chris mine just 140km up the road from Pretium’s Brucejack mine. The company has been following Pretium and its high quality resource for some time and has a 5 per cent stake.

While there may be a few direct synergies, the attraction of Pretium is there is no risk from buying into a new jurisdiction, let alone one of high sovereign risk. The deal will make Newcrest the largest miner in the region with stronger purchasing power.

This is a cash/scrip offer that will deliver Biswas control, with Pretium shareholders ending up with around 8 per cent of Newcrest and no board seat. Hence the premium offered.