By David Winning


SYDNEY--Scentre said its annual profit fell by 42% on a steep drop in the value of its property portfolio, but it is anticipating another year of earnings growth despite elevated interest rates casting a pall over the Australian consumer and pushing up its debt costs.

Scentre, which owns and operates nearly 40 Westfield branded shopping centers, reported a net profit of 174.9 million Australian dollars (US$114.3 million) for the 12 months through December, down from A$300.6 million in the prior fiscal year. The result reflected a property valuation decline of A$1.02 billion.

Funds from operations--a smoothed measure of operating cash flow that excludes depreciation, amortization and gains on asset sales--rose by 5.2% to A$1.09 billion across the year. On a per security basis, Scentre's funds from operations were 21.11 cents. Some analysts had expected Scentre to report funds from operations at the top end of guidance of 20.75-21.25 cents after the mall owner's final dividend beat expectations.

While some retail-property owners have taken a cautious tone about the outlook amid uncertainty about when Australia's central bank might start lowering interest rates, Scentre signaled confidence that it will ride out any slowdown in consumer spending and continue to grow profits.

The mall owner has a better buffer against inflation than most, with around 80% of specialty leases linked to movements in consumer prices. That has helped to entrench its recovery from the Covid-19 pandemic even as high interest rates have made its debt more costly to service. Scentre's gearing--a measure of debt relative to equity--of 30.4% at the end of December ranks among the highest in Australia's real-estate sector.

Scentre said it expects funds from operations to be between 21.75 Australian cents and 22.25 cents per security in 2024. If achieved, that would represent growth of between 3.0% and 5.4% on the result for 2023.

Management also forecast an annual distribution of a minimum 17.2 Australian cents per security in 2024, which would be at least 3.6% higher than the 16.60 cent payout in 2023.

Scentre said many key operational metrics improved in 2023. Occupancy ended the year at 99.2% up from 98.9% a year earlier. It had positive new leasing spreads of 3.1% on average. Gross rent collections across the year totaled A$2.72 billion.

Some analysts think Scentre needs to do more to bring its debt down to more manageable levels. Scentre said it had A$3.5 billion of liquidity available at the end of December, which it said was sufficient to cover all debt maturities until the end of 2025.

Scentre added that it has increased interest rate hedging to 92% at January 2024, at an average rate of 2.65%, and 80% at December 2024, at an average rate of 2.84%.


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


(END) Dow Jones Newswires

02-20-24 1710ET