Scentre cancels distribution as mall customers evaporate

However, some of the lockdown’s economic damage can’t be undone. Despite the group’s 42 Westfield malls staying open throughout the crisis, Scentre’s sales in March took a major hit as locked down shoppers abandoned big centres.

Speciality sales – discretionary items such as clothing, jewellery or cosmetics – plunged almost 26 per cent over the month after customer visits to the group’s malls fell off a cliff, down around 40 per cent. Speciality sales for the quarter, rather than just March, fell 7.1 per cent.

In response, the country’s largest shopping centre landlord has cut board fees and its leadership team’s pay by 20 per cent until June this year, while also slashing its design and construction workforce by 60 per cent after it put on hold development of its NSW’s Mt Druitt mall and reconsiders “all active and pending developments”.

The one bright spot in Scentre’s figures released on Monday was supermarket sales which jumped 9 per cent for the quarter and 20 per cent in March.

Just over half of all retailers (57 per cent) in its malls across the country are now open, but those that are trading take up more than two-thirds of all leasable space, Scentre said. “Given the uncertainty regarding the pandemic, its duration, the economic impact and the timing of operating cash flows for the group, the group has determined to not pay an interim distribution for the half-year period ending 30 June 2020,” it said.

Across the country multiple retailers are either reopening stores or revealing plans to reboot their businesses as the lockdown restrictions lift, but the pandemic’s ill effects will be felt for some time yet.

Michael Vincent, an analyst at investment bank Jefferies, said Scentre’s decision to cancel its distribution was consistent with its modelling and assumptions. But the move prompted Jefferies to downgrade the stock. “The result is OK but the March numbers are missing all the retailers who were shut,” Mr Vincent said. “Scentre has a weak balance sheet and a 20 per cent decline in asset values for June will see gearing [rise] from 33 to 41 per cent.”

“Rents need to adjust down and gearing is too high,” he said.

Scentre had previously suspended its guidance for the year. Macquarie analysts agreed the company’s update was “soft” but maintained a “neutral” outlook on the stock as “it was largely in line with other retail peers to date.”

Scentre’s shares have taken a battering this year. At last Friday’s close, they were trading at a 50.6 per cent discount to the group’s last stated book value of $4.35.