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Australian mall giant Scentre says 2017 profit jumps as refurbishment helps
[SYDNEY] Australian shopping mall giant Scentre Group said annual net profit jumped 41 per cent as it squeezed higher rents from tenants, a sign its strategy of revamping assets is creating a buffer against a downturn in brick-and-mortar retail.
The result vindicates moves by the world No. 3 mall owner to expand its tenant mix beyond traditional stores. Like its United States and Britain-focused former parent Westfield Corp, Scentre is adding cinemas, apartments, offices and high-end dining precincts to its malls to bolster rents.
That enabled Scentre, which has 34 Australian malls, to secure a 2.75 per cent overall rent hike for the year to Dec 31, the company said on Wednesday, even as the department stores it once counted as "anchor tenants" cut floor space or exit altogether.
"Our role is to maximise the value of the real estate that we own," Scentre Chief Executive Officer Peter Allen said on a call with media and analysts, referring to the non-retail parts of the company's malls.
Scentre shares rose nearly 2 per cent by mid session, in a flat overall market.
The hike in net profit came from upward asset revaluations totalling A$3.2 billion (S$3.3 billion) as a result of rent rises brought on by mall refurbishment. Excluding asset revaluations, operating profit rose 4.25 per cent to A$1.3 billion, it said.
Sales at Scentre's department store tenants fell 4.6 per cent in the year but sales of its speciality stores - widely seen as the biggest non-internet rival to department stores - grew 1.5 per cent, Scentre said.
"Guidance a tad soft, but specialty sales starting to outperform peers," UBS analysts said in a note to clients.
Scentre offered no net profit forecast but said it expects an increase in operating profit, which it calls funds from operations, of about 4 per cent in calendar 2018 - slightly slower than in 2017.
CEO Mr Allen did not expect any immediate impact on Scentre after Westfield agreed in December to a US$25 billion buyout from Europe's top property group Unibail-Rodamco SE, even though the European firm would take ownership of the Westfield trademark Scentre uses.
"When the deal goes through, we'll have discussions with Unibail-Rodamco to make sure we both manage the brand with respect to the high-quality properties that we currently own and operate," Mr Allen said.
Westfield reports 2017 results on Thursday.