Scentre share price defies ASX 200 sell-off to lift on strong earnings outlook

The retail property group owns and operates Westfield properties across Australia and New Zealand.

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Key points

  • Scentre share price gains on earnings growth outlook
  • 98.7% of the ASX 200 REIT's portfolio was leased as at 31 March
  • Scentre has increased its interest rate hedging profile

The Scentre Group (ASX: SCG) share price is shaking off the wider market sell-off to gain 0.4% at the lunch hour.

Scentre shares closed yesterday at $2.77 and are currently trading for $2.78. This comes as the S&P/ASX 200 Index (ASX: XJO) is down 1%.

The Australian real estate investment trust (REIT) released its first-quarter update for the three months ending 31 March today.

What happened during the quarter?

Scentre compared many of its quarterly performance statistics to 2019 — before the global pandemic ushered in lengthy store closures for the retail group.

The Scentre share price could be getting a boost today from its report, which shows customer visitation numbers are back to 88% of the 2019 figures and 112% of the 2021 numbers.

The company’s total majors and specialty sales were 7.1% higher in the first quarter of 2022 compared to Q1 2019.

Scentre also reported strong occupancy across its portfolio, with 98.7% leased as of 31 March. The company said that some 80% of its specialty leases are inflation-linked with average annual rent increases of CPI plus 2%. Specialty rent represents approximately 90% of its net operating income.

Stepping a month beyond the Q1 update, Scentre reported its gross rent collections for the first four months of 2022 (through to 30 April) came in at $800 million.

In Q1, the REIT also completed 536 leasing deals. Those deals included signing on 237 new merchants, with 50 new brands introduced into Scentre’s portfolio.

During the first quarter, the Scentre share price fell 6.5%.

What did Scentre management say?

Commenting on the first-quarter results, Scentre CEO Peter Allen said:

I am very pleased with the Group’s operating performance for the first quarter. We have continued to drive more visitation and saw a significant increase in sales for our business partners, above pre-pandemic levels…

During the quarter, we opened the $55 million rooftop entertainment, leisure and dining precinct at Westfield Mt Druitt. During the first month of trading, customer visitation and dwell time has significantly increased, with an overall increase of 56% compared to the same period last year.

Addressing Scentre’s preparations for higher interest rates in the years ahead, Scentre’s CFO and CEO-Elect Elliott Rusanow added:

The Group has restructured its interest rate hedging profile to increase hedging in 2023 and 2024. Interest rate hedging at January 2023 has been increased from 50% to approximately 65%, with a weighted average rate of 1.87%. At January 2024 interest rate hedging has increased from 40% to approximately 50% with a weighted average rate of 1.79%.

What’s next for Scentre Group?

Looking ahead, Allen said he was confident about the future of the business.

“The underlying structure of our revenue with inflation linked leases, provides long-term growth for our securityholders,” he said. “In light of the improving conditions and strong performance of our business, earnings are expected to grow in excess of 5.3% in 2022.”

Scentre said it expects to distribute at least 15 cents per security in 2022, an increase of at least 5.3% year-on-year.

Scentre share price snapshot

The Scentre share price is up 3.5% over the past 12 months. That compares to a 0.5% full-year loss posted by the ASX 200.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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