Scentre Group Takes a hit but Signs of a rebound emerge
Scentre Group Takes a hit but Signs of a rebound emerge
A declining effect of the pandemic on customer sentiment was revealed in Scentre Group’s annual result has been revealed with the activity in the 42 Westfield living centres across Australia and New Zealand. It however does not change other challenges the mall faces outside Covid.
1. Customers visit to Westfield, which dropped to 16 million during the pandemic in April was back to 46 million (near pre-covid levels) in the last quarter of 2020.
2. Cash collection which dropped to 28 per cent of billings in April returned to 93 per cent in the second half of 2020
3. More leases were signed in the December quarter of 2020 than in the same 3 months of 2019
4. The valuation decline, which drove the headline annual loss, flattened dramatically in the second half with independent valuers upgrading the figures on billion-dollar flagships such as Bondi Junction and Sydney.
Scentre Group showed enough confidence to predict a full-year distribution for calendar 2021. The payout, “at least” 14¢ security, equals the second half 7¢ for 2020, after the first-half distribution was cancelled, but is well short of the 22.6¢ enjoyed by security holders in 2019.
The payout gives chief executive Peter Allen and his CFO, Elliott Rusanow, enough retained earnings to reduce net debt, fund strategic initiatives, and cover operating and leasing capital.
Although Scentre’s stronger second half mirrored the experience of the other shopping centre, landlords, and managers, not all are confident enough to commit to guidance.
The chief executive of Vicinity Centres, which holds half of Chadstone in Melbourne, said he was “cautiously optimistic that a retail recovery was gaining momentum” but acknowledged that the pandemic had “accelerated the evolution of the retail landscape and consumer trends”.
This evolution, especially the improvement in online retail, is remaking a sector that for 40 years enjoyed super-cycle growth. Even relatively recent entrants to Australia, such as Zara and H&M, are “resizing” stores to reflect global pressures, changing demographics and, online sales.
The pandemic has also increased the interest in neighbourhood centres, large-format centres and free-standing supermarkets and hardware stores. Strong regional economic and population growth could also show up in the performance of non-metropolitan centres. Stockland, which reports on Thursday, has already flagged increased retailer interest outside the capital cities.
Grant McCasker, the head of APAC real estate research at UBS, has long analysed the retail sector. For his report on the Vicinity Centres result, he wrote that Structural headwinds exacerbated by COVID-19 are likely to see rents rebase by negative 20 per cent putting downward pressure on valuations, with valuers additionally rebasing their long-term growth assumptions. “Pressure will remain on retailer vacancies, bankruptcies and administrations with shorter-term lease renewals signed.”
Paul Zahra, the chief executive of the Australian Retailers Association, says that before COVID-19, annual rent increases were rising much faster than the CPI. “A correction was overdue, though it is disappointing it took a shock like a global pandemic for this to be realised,” he says.
“Many questions remain, particularly over the return of shoppers to CBD locations. Foot traffic is still below pre-pandemic levels and confidence remains fragile, albeit moving in the right direction.”
The correction shows up in what is called leasing spreads, or the difference between the rent on the old lease, and that on the new. Last year Scentre struck more than 2600 new leases, including 848 newcomers. On average, each new lease was struck at a rental 13 per cent lower than the outgoing figure, and new tenants enjoyed an incentive equivalent to 5 per cent of their total rental payments.
The impact of online retailing shows in today’s graph from Premier Investments. In the first 24 weeks of Premier’s latest half, online sales rose by 60 per cent, to $146 million, or 20 per cent of total sales. The group added, pointedly, that EBIT margins were “significantly higher” on online sales than on traditional store sales.
Allen argues that the physical store remains a central part of the customer engagement strategy for multichannel retailers. Scentre, however, has its online initiatives. More than a million people have the Westfield Plus app, and the click-and-collect facility, launched in response to the pandemic, has handled more than 10,000 orders and delivered a “significant body of learning”.
References:
– Premier Investments Limited
https://www.afr.com/company/asx/pmv
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