The financial impact of coronavirus lockdowns on the Scentre Group (ASX: SCG) was highlighted in the Sydney Morning Herald today. The Scentre Group share price is up almost 4.5% at the time of writing today.
The real estate investment trust (REIT) saw a 46% drop in funds from operations (FFO) compared to the previous corresponding period in 2019. In addition, the company reported a statutory loss of $3.613 billion. This was due to the requirement for the group to record reductions in asset value in the company's profit and loss statement.
Scentre Group used to be the domestic shopping centre assets of Westfield Corporation. It currently owns 42 shopping centres, or as the company refers to them, "living centres", across Australia. The COVID-19 lockdowns – and the government's accompanying mandatory Commercial Tenancies Code of Conduct – have impacted the company since late March.
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Activities during lockdown
The Scentre Group has accelerated strategic initiatives to improve engagement with its customers. These include Westfield Direct, a drive-through click and collect service for Westfield retailers with 14,000 products available from 590 retailers. The company has served 10,000 orders so far.
Westfield Plus is the other initiative. It's an app-based membership program, now with more than 500,000 members. This initiative is designed to drive value for customers by removing friction, personalising communications and rewarding engaged members with exclusive benefits.
The Scentre Group share price reflected the dip that hit stores trading during April and May of this year.
In Australia, this was down to 46% and 44% respectively. In New Zealand it fell to 2% and 3 % respectively. Accordingly, the company saw a drop in gross rent cash collections to 28% in May and 35% in April.
However, the Scentre Group has experienced a V-shaped recovery with traffic returning to 80%, excluding Victoria, compared with the previous corresponding period (pcp).
The company has a level of liquidity of $4.4 billion in cash and undrawn debt equivalents. It is geared to 38.4% and has a weighted average debt maturity of 4.8 years.
What management says
Scentre Group CEO Peter Allen praised the efforts of the management and staff.
"At the onset of the pandemic, we acted quickly to secure additional funding, ensuring we are in a strong financial position to see the group through and beyond the volatile period …," he said.
Mr Allen said the Scentre Group had supported retail partners throughout this period on a case-by-case basis… without receiving financial assistance from government.
He said: "The shopping centre industry has provided over $1.6 billion of support for retailers during the pandemic. Our industry is unique in that it has provided, and self-funded, a level of financial support beyond any other industry as well as most government pandemic support packages…"
Foolish Takeaway
The Scentre Group reported a return to 82% pcp of gross cash rent collections in July of this year. Moreover, the REIT's 42 shopping centres are strategically located in dense population areas with more than 16 million people living within a 30-minute vicinity. The ability of the company to produce a cash surplus in such conditions is testament to the resilient nature of its portfolio.
The company has declined to provide guidance on earnings or dividends at this stage. It is currently selling at a price to earnings (P/E) ratio of 9.09 and has a trailing 12-month dividend yield of 9.51%, even though the current dividend has not been announced. The Scentre Group share price is 4.46% higher today and is currently trading at $2.11.
