SCENTRE GROUP (SCG) 24 AUGUST 2017

RESULTS Half Year 2017 Half Year 2016 CHANGE Revenue ($m) 1,203.7 1,275.7 -5.6%

Bloomberg consensus ($m) 1,453.0

Property Revenue ($m) 1,033.7 1,014.0 +1.9%

Funds From Operations (FFO) ($m) 638.0 616.7 +3.5%

Revaluation Gains ($m) 929.0 390.8 +137.7%

Net Profit After Tax ($m) 1,412.1 1,154.0 +22.4%

Interim Distribution ($) 0.1086 0.1065 +2%

Scentre Group (SCG) profits soar thanks to favourable property revaluations

 Scentre Group (SCG) – which operates the 39 Westfield shopping centres in and New Zealand - posted a 22.4% lift in its half year net profit to $1.4bn thanks mainly to favourable property revaluations. SCG’s Funds from Operations – a property group’s preferred measure of profitability – rose by a much more subdued 3.5% to $638 million. The result was boosted by contractual rent increases and strong sales growth in food retail, food dining, technology and appliances categories. FFO strips out the impact of property revaluations ($929.3m over the half) which would otherwise skew the results.

 SCG first listed in 2010 following the split of in two. The current listed Westfield Corp (WFD) operates its global assets.

 SCG will pay investors a 10.86c per share distribution on 31 August 2017 and already went ex-distribution on 11 August 2017. This means purchasing shares in the company today onwards will not make investors eligible for the distribution payment. SCG currently has a 5.4% distribution yield.

 Comparable specialty sales in the portfolio grew by just 1.5% in the six months to June 2017. The modest growth could make further rent increases challenging moving forward. The portfolio remains 99.5% leased. Stores involved with the sale of Technology & Appliances were the standout performers over the half while Department Stores continued to underperform

 Over the half, SCG commenced $900 million in developments. This included in Perth and in Melbourne. The group announced today its $470 million development at in South East Queensland. This is the company’s first greenfield project (new development from scratch) in 12 years. SCG said “the new 59,000 square metre regional centre will comprise of Coles and Woolworths supermarkets, an Event Cinemas complex including Gold Class, Kmart and Target discount department stores and 140 specialty stores…” The development is also on track to open in September 2017.

 Looking ahead, SCG said it is on track to deliver its prior forecast for full year growth in FFO of around 4.25%. The likelihood of higher future interest rates could be a negative for the group as it has historically had a close relationship with bond yields and the arrival of Amazon in Australia will be another headwind.

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