By David Winning


SYDNEY--Scentre Group signaled another year of growth in funds from operations, despite the impact of higher interest rates on its debt costs and the risk that consumers could dial back spending in its malls as cost-of-living pressures rise.

Scentre, which owns and operates nearly 40 Westfield branded shopping centers, said it expects funds from operations to be between 20.75 Australian cents (14.2 U.S. cents) and 21.25 cents per security in 2023. If achieved, that would represent growth of between 3.4% and 5.9% on the result for 2022.

Scentre also forecast an annual distribution of a minimum 16.5 Australian cents per security in 2023, which would be at least 4.8% higher than 2022.

That outlook was disclosed alongside a net profit of A$300.6 million for the 12 months through December, down from A$887.9 million in the prior fiscal year. The weaker net profit partly reflected A$79 million of property valuation gains compared to A$888 million in 2021.

Funds from operations--a smoothed measure of operating cash flow that excludes depreciation, amortization and gains on asset sales--rose by 21% to A$1.04 billion across the year. Operating profit totaled A$1.02 billion, up 21%.

Mall owners have generally recovered well from the Covid-19 pandemic, with visitors returning in droves and tenants accepting higher rents in negotiations to renew leases. On Wednesday, Scentre said a record 3,409 lease deals were completed in 2022.

"So far in 2023 we have welcomed approximately 70 million customer visits, an increase of more than 10 million compared to the same period in 2022," said Chief Executive Elliott Rusanow.

Still, nine consecutive interest rate rises present a new threat as the Reserve Bank of Australia battles to tame inflation. An estimated 800,000 households are set to shift from mortgage deals with a low rate fixed during the pandemic to floating rates over the course of 2023, which will sharply raise their monthly required repayments and could reduce their discretionary spending.

Some analysts think Scentre has an advantage over other retail-focused real-estate investment trusts because a large proportion of its specialty leases are linked to inflation, meaning it has a layer of protection against costs going up. On Wednesday, Scentre said its interest rate hedging was 85% in January.

The company added that its gearing--a measure of debt relative to equity--was 27.3% at the end of December.


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


(END) Dow Jones Newswires

02-21-23 1711ET