Scentre Group to focus on $1.5b alternate developments

Retail landlord Scentre Group will look to a range of new, alternate-use projects valued at $1.5 billion at a number of its malls to offer more services as part of its experience-based Westfield Living Centres.

As the owner and manager of the Westfield centres across Australia and New Zealand, it owns the lion's share of large malls and has identified at least four where they can add new office towers and apartment blocks to increase the nearby catchment zone.

For the full year, Scentre reported a near flat funds from operations (FFO) being the most accurate measure for real estate investment trust of $1.3 billion, while its net income was up 1.4 per cent to $1.9 billion. The full year dividend was 22.6¢, up 2 per cent.

Plans for an upgraded Westfield Parramatta, looking south from Church Street Plaza.

Scentre chief executive Peter Allen forecast a 0.7 per cent rise in FFO for the year, which analysts termed "sluggish" and at the lower end of general market expectations. The re-leasing spreads for new leases were a negative 5.5 per cent for the year.

Mr Allen said Scentre will pursue a net zero emissions target by 2030 across its wholly owned portfolio of Westfield centres.

Moody's Investors Service vice-president Matthew Moore said Scentre's fiscal 2019 results were in line with his expectations and reflect a still solid overall operating performance.

The REIT reported mostly stable net-operating-income growth during the year – although down from 2018 – and high occupancy rates. These results reflect Scentre's strong asset quality and its active portfolio curation over recent years towards more experience-based and resilient retail offerings," Mr Moore said.

"However, leasing spreads remain negative and showed further deterioration in the period, reflecting the challenging retail environment."

Mr Allen said specialty sales rise 2.2 per cent, adding that January 2020 data showed a 3 per cent rise, although he said it was still "too early" to see any impact from the bushfires and coronavirus on customer visitation.

"When you look across our portfolio today, we've got got quite a number of opportunities, which we're exploring. We have been working on a potential office at above Westfield Parramatta in Sydney," Mr Allen said.

"We're out there in the market in terms of pre-leasing. We've got approval in place to be able to do that. We're re-jigging the size and scale of that. We just recently got approval for an office at Liverpool, above the centres and at Eastgardens Sydney we're looking at these much more than retail. We're looking at commercial working educational and residential."

Mr Allen said in recent years, the has been been a shift towards experiential retail and consume on site, which continues.

"Today, 43 per cent of the stores in our portfolio are experience- and services-based," Mr Allen said.

Macquarie Equities' analysts said the result was in line with expectations but the 2020 outlook was "softer than expected".

"While asset values are largely holding up for now, we believe returns on the property portfolio and developments remains under pressure which will weigh on earnings and distributions into the medium term," the analysts said.

Scentre securities were down 1.8 per cent to $3.71.

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