S&P/ASX 200 Index (ASX: XJO) stock Scentre Group (ASX: SCG) is an industry leader that I believe is well worth considering for an investment in the current economic environment.
High interest rates have been a challenge for real estate investment trusts (REITs) because they have increased the cost of financing (hurting net rental profits) and pushed down on asset values.
This business owns 42 Westfield shopping centres located throughout Australia and New Zealand. Scentre says these locations represent "the heart of the communities they each serve".
The chart below shows that the ASX 200 stock has dropped more than 10% since 11 February 2025. For such a large business that generates resilient rental profits, that's a sizeable and interesting decline. Below are three reasons why Scentre shares are compelling.
Growing visitation for ASX 200 stock
In an era of growing adoption of e-commerce, I think only the best shopping centre businesses will deliver pleasing growth.
Scentre is seeing increasing numbers of shoppers go through its doors. In the 2024 calendar year, the business saw 526 million customer visits, an increase of 14 million compared to 2023. The Westfield membership program now has more than 4.5 million members, increasing by 0.7 million during 2024.
This high level of customer visits helps ensure that retailers want to have a presence in the Westfield centres. Scentre occupancy increased to 99.6% at 31 December 2024, compared to 99.2% at the end of 2023.
Valuable assets making solid rental profit for ASX 200 stock
The high occupancy rate means Scentre is maximising the rental potential of its assets and is also helping boost the rental value of its properties.
For example, during the 2024 financial year, the average specialty rent escalations were 5.2% over a 12-month period.
Solid organic rental growth is helping boost the overall rental profit. Its net operating income for FY24 rose 4% to $2.03 billion despite the headwind of higher interest rates.
Pleasingly, the ASX 200 stock has a $4 billion pipeline of future development opportunities that increase the value of its real estate and boost the rental profit further.
On top of that, Scentre has received rezoning approval at Westfield Hornsby in Sydney and Westfield Belconnen in Canberra, which provides the opportunity for large-scale residential development at those sites.
The business is expecting to grow its funds from operations per security (FFO) for 2025 to 22.75 cents, an increase of 4.3%.
If RBA interest rates reduce further in 2025, this could help boost rental profits and the underlying value of the ASX 200 stock.
Good distribution yield
The final thing I'll note is the level of passive income.
The business is expecting to pay a distribution per security of 17.63 cents.
At the current Scentre unit price, that forecast payout translates into a forward distribution yield of 5.3%.
While that's not the biggest yield, I think it's solid, better than what you can get from a term deposit, and it's steadily growing.
There's a lot to like about this ASX 200 stock.
