CFS stays upbeat despite profit knock

CFS Retail has reported a 27.9 per cent fall in net profit to $295 million for the latest year, reflecting tough market conditions and one-off property revaluations.

The trust said it had trimmed the size of its proposed expansion at Chadstone Shopping Centre in Melbourne by about 5000 square metres to 20,000 square metres to "de-risk" the project in a weak market for apparel and discretionary items.

Before the one-off items, there was a 3.5 per cent increase in distributable income to $384.6 million, in line with the measure used by analysts.

The trust reported a full-year distribution of 13.6¢ per security, up 3.8 per cent, and forecast a payout of 13.3¢-13.7¢ for the coming year, depending on asset sales of up to $500 million.

These assets include four centres in Victoria that were to be sold to the proposed Pacific Retail REIT, which has been put on hold until conditions improve.

During the year, like-for-like net property income from tenants increased 2 per cent, reflecting modest rental growth, while total net property income decreased 2 per cent to $537.2 million following the sale of a 50 per cent interest in The Myer Centre, Brisbane, in March last year.

Rents were down about 7.5 per cent for new leases, but steady for lease renewals, leading to a negative 1.1 per cent releasing spread, with the same expected this year.

Fund chief executive Michael Gorman said the Emporium project in Melbourne was 90 per cent leased and scheduled to open by the end of next March. In Sydney, the Homebush Direct Factory Outlet (DFO) was also 99.4 per cent leased, with redevelopment on track.

Mr Gorman declined to comment on the internalisation plans for CFS Retail by its manager, Commonwealth Bank, which analysts say could prompt the trust's largest shareholder, John Gandel - who owns half of Chadstone - to make an offer.

"It's not appropriate for me to make any comments on the internalisation, except that it's business as usual for us," Mr Gorman said.

"Specialty sales growth was slightly below our forecast of 3 per cent, but we're pleased with the steady improvement this year in what continues to a very challenging retail environment."

He said there had been a reshuffling of tenants in the portfolio, which also includes Chatswood Chase in Sydney's north, with fashion making way for technology (such as Apple) and retail services (nail salons and medical/banking leases).

"In response to several tough years in the retail sector, we are seeing retailers becoming more sophisticated in how they operate," Mr Gorman said.

"Many have been reviewing their operating models and supply chains to implement significant efficiency gains. This has enabled them to offer goods at lower prices while maintaining or increasing their profit margins.

"If anything, the sentiment among our retailers is slightly better than it was 12 months ago."