Scentre Remains Resilient Amidst Pressure from Higher Interest Rates

Scentre, the owner and operator of almost 40 Westfield shopping centers, has reaffirmed its guidance for annual funds from operations and distribution. Despite the challenges posed by higher interest rates on consumers, Scentre’s malls continue to display resilience.

According to the company, it anticipates funds from operations to be between 20.75 and 21.25 Australian cents in the 12 months through December. This smooth measure of operating cash flow excludes depreciation, amortization, and gains on asset sales. If achieved, it would signify a growth rate of up to 5.9% compared to the previous year.

Additionally, Scentre forecasts a minimum annual distribution of 16.5 cents, representing a minimum increase of 4.8% compared to the prior year.

The escalation of interest rates is taking a toll on consumers, especially those households whose fixed-rate mortgages obtained during the pandemic are now expiring. As a result, discretionary income is limited and shopping habits are affected. Retail sales volumes have declined for three consecutive quarters, marking the first time since the global financial crisis in 2008.

For companies like Scentre, a slowdown in spending poses a threat to their recovery from the pandemic. However, despite these challenges, Scentre has been witnessing positive trends in leasing deals, rent collection, and occupancy rates. It is crucial for the company to navigate this critical juncture successfully while managing rising interest rates and their impact on debt costs.

In the first half of the year, Scentre reported a net profit of A$149.4 million, reflecting a 69% decrease from the A$479.8 million figure recorded the previous year. However, funds from operations experienced a slight increase of 1.5% to A$556.6 million during the same period.

Scentre’s resilience amidst higher interest rates and its commitment to maintaining strong guidance for funds from operations and distribution signifies its determination to overcome current challenges and recover from the ongoing impact of the pandemic.