Shoppers back in Westfields as Christmas sales loom as key test

Local Westfield owner Scentre has restored its earnings guidance as it gets back on track after the coronavirus crisis.

Peter Allen is the CEO of Scentre Group, which manages all Westfield Centres in Australia. Picture: Aaron Francis / The Australian

Shoppers are pouring back into local Westfields, prompting owner the Scentre Group to restore guidance and push ahead with a long-planned development in Melbourne’s suburbs.

Malls were savaged by the coronavirus crisis and some retailers are making a slow recovery, but most centres will benefit from moves to reflate the economy and the operator is hopeful of a busy Christmas period.

Scentre said that after the “significant easing” of restrictions and strong operating conditions, it was returning to the original distribution guidance it provided in February.

The company was buoyed as it collected $1.8bn in gross rent for the 10 months to the end of October, with an increase of $607m since the end of June. In the nine months to the end of September it completed 2010 lease deals, including 868 new merchants, welcoming 191 new brands.

Scentre chief executive Peter Allen said all Westfield centres had remained open during the ­period, operating with Covid-19 protocols.

“Our Queensland, WA and SA centres continued to trade well during this quarter, consistent with the first half of the year,” Mr Allen said. “Customers are again rapidly returning to our Westfield Living Centres in NSW, Victoria and ACT now that restrictions have eased.”

Retailers are recovering despite quiet spots in some malls. “Over 95 per cent of stores in our Australian portfolio are open and trading, with more stores to reopen over the coming weeks,” Mr Allen said.

Gross rent collections for the 10-month period to the end of October were $187m more than the same period last year, even though there was extensive lockdowns during this period.

“We have remained focused on our strategy, leveraging the strengths of our core business by becoming essential to people, communities and the businesses that interact with them,” Mr Allen said.

Scentre is kicking off the $355m Westfield Knox redevelopment, which will transform the Melbourne centre. In a sign of the pressure on department stores, it will replace Myer with new retailers, including Woolworths and Aldi.

At the half-year result, Scentre indicated it was targeting a distribution of 14c per security. Now the company has returned to its February guidance of “at least 14c per security”.

“This is an important step change in our view, and is likely driven by confidence in cash collection metrics, along with greater certainty regarding the outlook for Covid-19,” Macquarie analyst Stuart McLean said.

The shopping centre operator’s records of customer visits shows NSW is at about 80 per cent of pre-Covid levels, while Victoria is back at 95 per cent.

Scentre reported cash collection of about $1.8bn over the calendar year to the end of October, compared to about $1.6bn for this period last despite lockdowns in NSW and Victoria in recent months. However, more recent collections have been weaker, given the timing of lockdowns.

October cash collection of $172m compares to $203m last year and September’s cash collection of $135m, highlighting an ­improvement either driven by confidence in the reopening or an increase in collection of rent from prior periods.

Macquarie kept its underperform rating. “NSW footfall appears to be returning to 2020 levels, excluding lockdown periods, albeit is still below 2019. In our view, sales will be key and need to be superior to 2019 levels to ensure sustainability of occupancy costs given fixed escalators over the past two years,” Mr McLean said.

Morgan Stanley analysts Simon Chan and Lauren Berry said the update was light on details, but rent collection for the four months ended October looks to be about 76 per cent. This also included late and deferred rent from previous periods, they said.

On the basis of foot traffic, the NSW recovery appeared to be the slowest area, but the analysts said this may be due to Scentre’s heavy exposure to CBD malls in Sydney, Parramatta and Chatswood.