Rent rebound not enough to save Westfield mall owner from $3.7b loss
Westfield mall owner Scentre Group says rents at its shopping centres are bouncing back but it was not enough to save Australia’s largest retail landlord from a $3.7 billion loss after the value of its malls were written down.
The shopping centre landlord has reported a statutory loss of $3.7 billion for the year ending December 2020, mainly the result of a large $4.2 billion hit to the value of its malls.
Despite bearing the brunt of last year’s harsh social distancing regulations, tenants across Scentre’s shopping centre portfolio are now paying full rent, bouncing back from the worst pandemic-struck months last year when payments plunged by two thirds.
Demand for space across Westfield’s “living centres” remains strong with its portfolio 98.5 per cent leased at the end of December, Scentre’s chief executive Peter Allen said.
The jump in rental earnings came in a wave towards the end of last year and resulted in Scentre reporting a significant second-half boost in funds from operations (FFO) – an industry metric that excludes gains or losses from property valuations – to a total of $766 million for the year.
In the year prior to the pandemic, the group’s FFO was $1.3 billion.
“The 2020 result is better than expected by us and the market, driven by better retail rent collection,” investment bank Jefferies’ vice-president Michael Vincent said.
Mr Allen said 2020 was a “challenging year,” adding he was “proud of how our people adapted to the conditions”.
“Whilst uncertainty remains in 2021, subject to no material change in conditions, the group expects to distribute at least 14¢ per security for 2021,” he said.
“Every Westfield [centre] has remained open every day, providing our retail and brand partners the opportunity to connect with the customer. During 2020, we had more than 450 million customer visits, including an average of 46 million per month during the fourth quarter.”
Despite pressure from COVID-hit retailers to move to a percentage of sales turnover model, Scentre did not budge on the traditional fixed rent structure of its leases.
It completed 2625 lease deals over the year, including 848 with new merchants, and reached commercial arrangements with 3398 of its 3600 retailers in relation to the government’s mandated code of conduct, aimed at providing rent relief to tenants.
“The group plans to retain earnings to cover operating and leasing capital expenditure, fund strategic initiatives and reduce net debt,” Mr Allen said.
JP Morgan analyst Richard Jones said the overall result was an improvement compared with six months ago.
“Operating metrics are beginning to normalise, rent waivers are reducing and should continue to do so, albeit negative leasing spreads increased materially again, a reflection that specialty rents are re-basing. We expect earnings and distributions should largely stabilise in 2021,” he said.
In early trade on Wednesday, Scentre shares were 1.4 per cent lower at $2.83.
