By David Winning


SYDNEY--Scentre reaffirmed its guidance for annual funds from operations and its distribution, as its malls continue to show resilience despite the pressure placed by higher interest rates on consumers.

Scentre said it continues to expect funds from operations--a smoothed measure of operating cash flow that excludes depreciation, amortization and gains on asset sales--of 20.75 Australian cents (13.31 U.S. cents) and 21.25 cents in the 12 months through December. If achieved, that would represent growth of up to 5.9% compared with 2022.

The company, which owns and operates nearly 40 Westfield branded shopping centers, forecast a minimum annual distribution of 16.5 cents, up by at least 4.8% on the prior year.

Retail property owners are at a critical juncture as the rapid escalation in interest rates is starting to take its toll on consumers. Many households which took out a fixed-rate mortgage during the pandemic are now seeing those deals expire, limiting their discretionary income and ability to shop in stores.

Official data show retail sales volumes have fallen for three quarters in a row, representing the first time since the global financial crisis in 2008 that this has happened.

For companies like Scentre, any slowdown in spending threatens to derail their recovery from the pandemic, which has so far featured increases in leasing deals, higher rent collection, and an uptick in occupancy. At the same time, higher interest rates mean the cost of a company's own debt is rising.

Scentre reported a net profit of A$149.4 million in the six months through June, down 69% from A$479.8 million a year ago. The result included property revaluation losses of A$392.5 million.

Funds from operations rose by 1.5% to A$556.6 million in the six-month period. Net operating income totaled A$971.9 million, up 10%.

"Our strategy has enabled our business partners to achieve annual sales of $27.8 billion to 30 June 2023, an increase of A$4.9 billion or 21.6% compared to the same period in 2022. This represents another record level of sales across our portfolio," said Chief Executive Elliott Rusanow, who succeeded Peter Allen nearly a year ago.

Scentre's occupancy levels were 99.0% at the end of June, compared to 98.8% a year ago, and 1,567 lease deals were completed in the half-year period.

Scentre's gross rent collection totaled A$1.33 billion during the six-month period. Its gearing--a measure of debt relative to equity--was 28.0% at the end of June.


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


(END) Dow Jones Newswires

08-21-23 1852ET