Westfield offering tenants up to 10% off
Westfield Group is offering as much as a 10 per cent discount to new tenants to keep its malls full against the softening retail environment in Australia and New Zealand.
While existing leases being renewed are seeing rents rise in line with inflation, the company said new contracts, covering about 7.7 per cent of its total shops, were on average 6 per cent lower than those signed a year ago.
For the half year to June 30, the world's biggest mall owner by value reported a 35.7 per cent drop in net profit on the IFRS standard, to $514.8 million. Using the funds from operations measure, the result was $729 million, down from $751.2 million in the previous corresponding period.
The drop in profit was affected by $4.9 billion of asset sales and dissolution of a contract in Brazil over the past year.
The interim dividend was 25.5¢ per security, an increase of 3 per cent on the previous corresponding period. The group reconfirmed its 2013 earnings forecast for 66.5¢ per share, up 2.3 per cent on the previous year.
Westfield Retail Trust, which owns half of the Australian and NZ assets, reported a 4 per cent fall in first-half net profit to $402.1 million, citing tough retail conditions. It paid an interim dividend of 9.9¢ and reaffirmed its full-year forecast of 19.85¢.
For the six months, specialty sales growth across the Westfield group was 2 per cent, with Australia rising 1.8 per cent, the US ahead 4.3 per cent and Britain rising 0.2 per cent.
That compared with a growth rate of 3.3 per cent for the first half of the 2012 year.
Macquarie Equities analysts attributed the lower growth to tenant remixing, resulting in increased downtime and negative rental reversions.
In Australia, the department store sales dropped by an average 1.4 per cent, as did cinemas (down 2.3 per cent) - owing to no big movies after The Great Gatsby - while supermarkets sales jumped 10 per cent and retail services, including nail salons and mobile phone outlets, rose 2.7 per cent.
Westfield's co-chief executive, Steven Lowy said there were pressures at the margins for some sectors and that was leading the retail landlord to remix the centres to focus more on food, entertainment, technology offerings and the big overseas fashion brands.
"We are punching into the headwinds," Mr Lowy said. "There is no denying it's tough, but there are signs of improving consumer sentiment, albeit at a slow rate.
"The vast majority of our leases grew by CPI plus 2 per cent (about 4 per cent). That is offset by reductions [between 9 and 10 per cent] on the 7.7 per cent of stores that were re-leased to new tenants in the first half.
"So you've got this growth going on in the bulk of the business at the margin ... and that comes out to overall growth in net operating income of about 1.5 to 2 per cent."
With $2.8 billion of new developments coming online and a forecast improvement in the US and Britain in the next six months, the group has forecast a 3 per cent rise in full-year distribution to 51¢ per share.
The comparative sales growth (excluding new stores) expectations for the full year remain unchanged, being 4 to 5 per cent in the US, 1.5 to 2 per cent in Australia and NZ and 4 to 5 per cent in Britain.