Scentre Group: Result 2015

Whilst the name Scentre Group may be largely unknown by the nation's shoppers, its Westfield brand is one of the most iconic in Australian business.

With the release of its first full-year result since the 2014 restructure of Westfield Group, this owner of Australian and New Zealand Westfield shopping centres again showed why it's the undisputed giant of the Australian retail property industry.

In 2015, Scentre's Australian shopping malls generated around $20.6 billion in retail sales. Using one recent estimate, this means around 6% of Australia's total retail activity took place in a Westfield mall. Its New Zealand malls generated another $1.9bn in sales.

The jewels in Scentre's crown continue to be its Bondi Junction and Pitt Street Mall properties in Sydney. Both centres generated more than $1bn in total sales in 2015 and the latter's retail complex and office towers are now valued at more than $4.1 billion. Only Vicinity's Chadstone mall can rival this figure but, unlike Vicinity, Scentre doesn't share ownership with anyone else.

No surprises

Just as you'd hope with a listed property trust that's mainly just a rent collector, there were no surprises in this result.

Comparable net operating income grew by 2.6% and specialty store sales growth, at 5.3%, was in line with peers. Encouragingly, occupancy costs fell from 18.8% in September 2014 to 17.8% in December 2015, meaning that Scentre has scope to increase rents when tenants renew.

Like other major shopping centre landlords, Scentre has moved away from acquiring new sites and is instead focusing on improving returns from its existing properties through development. In the current market of low capitalisation rates (and hence high prices) for existing shopping centres, this strategy provides a better return on investment.

Scentre started $830m in development projects in 2015 and another $495m in 2016 (of which its shares amount to $580m and $425m respectively). A further $3bn worth of development is planned in coming years. 

The company also develops malls for third parties and, whilst management guided to $80m in income from this business in 2016, it's unclear what it might earn once it completes the redevelopment of AMP Capital's Pacific Fair centre in 2016.

Scentre Group has risen 18% since Scentre Group: Interim result 2015 (Avoid – $3.75). With some of the country's best retail assets, it's a company we would love to own. Unfortunately, it's still too expensive and we continue to recommend that you AVOID.