By David Winning


SYDNEY--Scentre Group kept its annual payout guidance unchanged despite the rapid step up in interest rates, as shoppers returned to its malls following the relaxation of pandemic restrictions.

Scentre said it continues to expect it will distribute at least 15 Australian cents (10.3 U.S. cents) per security to its equity holders in 2022. That mirrors the outlook in its first-quarter operational update delivered to investors in May.

However, Scentre also said it expects funds from operations--a smoothed measure of operating cash flow that excludes depreciation, amortization and gains on asset sales--to exceed 19.0 cents per security this year, which would represent growth of more than 14.2% compared to fiscal 2021.

Mall owners including Scentre are benefiting from a significant profit recovery as shoppers shrug off concerns around new variants of the coronavirus to head back into stores. Retail sales have rebounded from pandemic lows and occupancy levels have stayed strong through the first six months of this year.

Scentre, which owns and operates nearly 40 Westfield branded shopping centers, reported a net profit of A$479.8 million in the six months through June, up from A$400.4 million a year ago. The result included property revaluation gains of A$286.1 million.

Funds from operations rose by 18% to A$548.6 million in the six-month period. Operating profit totaled A$540.5 million.

Scentre and other property companies are adjusting to the business threats posed by the acceleration in inflation, which the Reserve Bank of Australia has predicted could hit an annual rate of about 8.0% in 2022. Interest rates have risen sharply to 1.85% in response to inflation, and some economists think they could peak above 3% before falling next year.

Rising interest rates could weigh on households' spending plans as more of their income is channelled toward meeting their mortgage repayments. However, many Australian households built up significant saving buffers during the pandemic that could cushion any broad impact on spending.

At the same time, rising interest rates also hurt companies by making it more costly to service the debt carried on their balance sheets. Scentre has proactively restructured its interest-rate hedging profile to counter that threat in 2023 and 2024.

"In the six-month period to 30 June 2022, our business partners achieved over A$12.0 billion of sales, A$800 million more than the first half of 2021 and A$500 million more than the first half of 2019, pre-pandemic," said Chief Executive Peter Allen.

He said Scentre's occupancy levels rose to 98.8%, up 30 basis points compared to a year ago, and 1,579 lease deals were completed in the half-year period at significantly better spreads.

Scentre's gross rent collection totaled A$1.25 billion during the six-month period. Its gearing--a measure of debt relative to equity--was 27.1% at the end of June.

Elliott Rusanow, who will become Scentre's next chief executive, said the company has 80% hedging in place for the second half of 2022, 70% at January 2023 and 67% at December 2023.


Write to David Winning at david.winning@wsj.com


(END) Dow Jones Newswires

08-22-22 1858ET