Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Funds from operations increased by 2% to $568 million for the first half of 2024.
- Net operating income grew by 3.5% to $1.006 billion.
- Portfolio occupancy increased to 99.3%, up from 99% a year ago.
- The Westfield membership program saw a significant increase, now boasting over 4.1 million members.
- Scentre Group (STGPF, Financial) has a $4 billion pipeline of future retail development opportunities.
Negative Points
- Property expenses increased due to higher award rates for cleaning and security subcontractors.
- The statutory result included an unrealized property revaluation decrease of $120 million.
- Average specialty occupancy costs rose to 16.9%, up from 16.3% a year ago.
- Project income decreased significantly from $10.6 million to $3 million.
- The weighted average interest rate for the 6-month period was relatively high at 5.6%.
Q & A Highlights
Highlights of Scentre Group (STGPF) Earnings Call Transcript
Q: Can you provide more details on the tender offer, including the current trading price and any penalties for early repayment?
A: Andrew Clarke, CFO: The hybrid market has seen significant improvements in 2024, with credit spreads compressing by over 200 basis points since September 2020. The tender offer will be at a small premium to the current trading price but still at a slight discount to the face value. There are no penalties for early repayment as we are replacing subordinated notes with new ones to maintain equity credit.
Q: Why is the tender offer set at USD 550 million?
A: Andrew Clarke, CFO: The amount is based on the expected level of demand in the Australian dollar market. We aim to match the tender offer with the new issuance to maintain the 50% equity credit on the notes.
Q: How does the tender offer align with your previous commentary on joint venture opportunities?
A: Elliott Rusanow, CEO: We have consistently stated that joint ventures are one of our funding sources. The tender offer is another source of capital, highlighting our ability to fund the business without issuing highly dilutive equity.
Q: Can you provide broader commentary on capital demand for larger retail assets?
A: Andrew Clarke, CFO: The private capital market has been more active, leading to the establishment of the Tea Tree Opportunity Trust. We continue to look at joint ventures for our 12 assets worth $19-$20 billion. However, large institutional investors are still cautious about investing in retail real estate.
Q: What are the drivers behind the moderation in re-leasing spreads?
A: Elliott Rusanow, CEO: Re-leasing spreads can vary due to several factors, including escalations during the period and the types of stores expiring. Our focus is on overall income generation rather than specific re-leasing spreads. We see opportunities to increase occupancy costs back to historical levels of 18%-19%, driven by high productivity.
Q: How do you see the prices of the Tea Tree and West Lakes transactions versus your book value?
A: Andrew Clarke, CFO: The pricing is favorable for the purchaser due to the motivated seller. Independent valuations post-transaction were slightly higher than the transaction prices, indicating good buys at the available pricing.
Q: Are the numbers presented in the report truly like-for-like from a timing perspective?
A: Elliott Rusanow, CEO: The sales numbers are absolute, not comparable. We have not excluded any downsizing or reconfigurations from our sales numbers, ensuring a true representation of our performance.
Q: Is 99.3% occupancy as good as it can get?
A: Elliott Rusanow, CEO: We aim to push occupancy above 99.3%. Our expectation is to improve occupancy further, with 100% being the ultimate goal.
Q: What are the leasing spreads on new leases and renewals?
A: Elliott Rusanow, CEO: The overall leasing spread is 1.1%. The split between new leases and renewals is consistent, and we can provide detailed numbers after the call.
Q: Have you factored in the potential benefit from repricing or reissuing the sub notes in your guidance?
A: Andrew Clarke, CFO: The guidance range includes the potential benefit from these transactions. Successfully completing them will be immediately accretive to earnings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
