2019 Annual Financial Report Creating Extraordinary Places, Connecting and Enriching Communities
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2019 Annual Financial Report Creating extraordinary places, connecting and enriching communities 31 December 2019 Scentre Group Limited ABN 66 001 671 496 SCENTRE GROUP For the Financial Year ended 31 December 2019 Contents 2019 Results Overview 2 Our Purpose and Our Plan 3 Joint Chairman and Chief Executive Officer Letter to Securityholders 4 Directors’ Report 6 Independent Auditor’s Report 42 Income Statement 45 Statement of Comprehensive Income 46 Balance Sheet 47 Statement of Changes in Equity 48 Cash Flow Statement 49 Notes to the Financial Statements 50 Directors’ Declaration 81 Investor Relations 82 Members’ Information 84 Directory IBC SCENTRE GROUP ANNUAL FINANCIAL REPORT 2019 // PAGE 1 2019 Results Overview FY19 FY18 FY17 FY16 FY15 Funds from Operations (FFO) A$m 1,344.6 1,339.5 1,290.2 1,237.6 1,199.2 FFO per security cents 25.42 25.24 24.29 23.30 22.58 Distribution per security cents 22.60 22.16 21.73 21.30 20.90 Security price (at 31 December) A$ 3.83 3.90 4.19 4.64 4.19 Assets under management (AUM) A$b 56.0 54.2 51.0 45.7 42.1 Group’s share of AUM A$b 38.2 39.1 36.2 32.3 30.1 Scentre Group overview > Scentre Group owns and operates an extraordinary platform of 42 Westfield Living Centres across Australia and New Zealand, regarded as the first choice platform for retail and brand partners to connect and interact with customers. > Our business is a vertically integrated operating platform with industry leading capability in management, leasing, development, design and construction. We are focussed on listening and responding to what our customers want. > During 2019, Scentre Group’s annual customer visits across its platform grew to more than 548 million. > Our centres are considered to be essential social infrastructure in our communities. More than 65% of the Australian and New Zealand population live within a 30-minute drive of a Westfield Living Centre. > $25 billion of annual retail in-store sales take place across Australia and New Zealand. More than 7.5% of all retail sales in Australia occur in a Westfield Living Centre. > Scentre Group owns 7 of the top 10 centres in Australia and 4 of the top 5 centres in New Zealand. > Our future retail development activity exceeds $3 billion. > Our balance sheet is strong with “A” grade credit ratings by S&P, Fitch and Moody’s. PAGE 2 Our Purpose Creating extraordinary places, connecting and enriching communities Our Plan We will create the places more people choose to come, more often, for longer Our Strategy Retail & Brand Customers People Investors Partners We will be customer We will be true We will be the place We will deliver long obsessed, delivering business partners for for talent to thrive term sustainable extraordinary our retailers and returns through experiences, brands to maximise economic cycles every day their opportunity to interact with customers We are a responsible sustainable business Economic Community Environment People Performance Designing and Net Zero Emissions Creating a safe, Reducing our risk and operating Westfield by 2030 healthy, diverse and creating sustainable Living Centres that are inclusive workplace long-term value considered valued where talent thrives social infrastructure and an integral part of our customers’ lives SCENTRE GROUP ANNUAL FINANCIAL REPORT 2019 // PAGE 3 Dear Securityholder JOINT CHAIRMAN AND CHIEF EXECUTIVE OFFICER LETTER TO SECURITYHOLDERS We are pleased to report our financial performance for the We continue to innovate in how we engage with year was strong with Funds from Operations (FFO) growing our customer to leverage these opportunities. by 3.2% on a pro forma basis (1) and distributions growing New technologies are providing more opportunities to by 2.0%, both in line with forecast. enhance our direct engagement with the consumer. For example, as part of the launch of Westfield Newmarket, We have delivered what we said we would because we we developed and launched Westfield Plus, a mobile-app have remained focused on our customers and curated our based membership program. More than 200,000 offer to keep pace with their changing expectations. customers in New Zealand have downloaded the app. Operating Earnings – the Group’s FFO excluding Project The Group’s completion of the NZD790 million Westfield Income – was $1.287 billion for the 12-month period, Newmarket development on time was a highlight of the up 1.0% per security or 3.6% on a pro forma basis. year, creating the leading lifestyle and fashion destination in New Zealand. The strength of our portfolio and source of competitive advantage for our leading operating platform of We continue to reinvest in the portfolio and have 42 Westfield Living Centres is executing a customer commenced a number of projects that will improve the focussed strategy and consistently delivering results. offer and experience for our customers. This includes commencing the $50 million project at Westfield Carindale Our plan and strategic objective is to create the places which includes a new David Jones and introduction of more people choose to come, more often, for longer. Kmart; the $55 million dining and entertainment precinct Annual customer visits increased by more than at Westfield Mt Druitt adding 12 new rooftop restaurants as 12 million during 2019 to over 548 million and our well as $89 million of special projects including the opening occupancy remains high at 99.3%. We are the leading of Bradley Street dining precinct at Westfield Woden and platform in Australia and New Zealand for retailers and the expansion and refurbishment of the dining precinct at brands to interact with consumers. Westfield Doncaster. Retail partner in-store sales within our portfolio grew by Capital management continues to be a priority for the Group. $1 billion during the year to $25 billion. This represents In 2019 we released $2.1 billion of capital through the more than 7.5% of total retail sales in Australia. We have divestment of the Sydney Office Towers for $1.52 billion and 3,600 brands represented in more than 12,000 outlets the joint venturing of Westfield Burwood for $575 million. across our portfolio. The average annual specialty in-store The capital released from these transactions is being sales within our portfolio is $1.525 million per store. redeployed into our business. By listening and acting on what our customers want we have During the year we acquired a 50% interest in Westfield actively curated the mix within our portfolio. During the year Booragoon in Perth for $570 million, becoming the we introduced 344 new brands to our portfolio and 279 long-term manager and developer for that centre. existing brands grew their store network with us. Westfield Booragoon’s strategic location and high In recent years we have seen consumers shift their quality make this acquisition consistent with our strategy. preferences towards experiential retail and consume We also commenced our security buy-back program on-site. Today, 43% of the stores in our portfolio are of up to $800 million and to date have purchased experienced based. Customers want a seamless shopping $304 million securities. experience. We continue to see increased investment in The Group’s financial position remains strong with FFO to click and collect as retailers seek to optimise their store Debt of 10.3% and interest cover of 3.6 times. Our balance networks and close proximity to customers. sheet gearing is 33% at 31 December 2019. Our balance We view this as an opportunity and believe that physical sheet does not ascribe any value to the Group’s unique retail is, and will remain, a central part of the retail operating platform, which generates more than $215 million ecosystem – key to retailers’ sales and distribution strategy. equivalent to 16% of our FFO. The Group has A grade This is based on the fact that well-located high-quality credit ratings from S&P, Fitch and Moody’s. We continue to physical retail, like our portfolio, is the most cost-efficient maintain high levels of liquidity with undrawn committed means for a brand to engage with the customer. It is also facilities and cash totalling $1.8 billion. difficult to replicate. (i) Pro forma FFO adjusts for the transactions completed during the year, including the sale of the Sydney Office towers for $1.52 billion in June 2019, the 50% joint venture of Westfield Burwood for $575 million also in June, the acquisition of 50% of Westfield Booragoon for $570 million in December and the $304 million of securities bought back under the 2019 buy-back program as at 31 December 2019. PAGE 4 Our long-term objective to create sustainable returns for The Group forecasts to achieve Project Income (after tax) of our securityholders is consistent with our approach to be approximately $28 million. This is a function of the amount a responsible, sustainable business. of project work currently underway on behalf of external parties. The Group forecasts FFO for the 12 months ending Our Sustainable Business Framework is built on four pillars 31 December 2020 of approximately 25.30 cents per – our communities, our people, our environmental impact security. This would represent growth, on a pro forma and our economic performance. basis, of approximately 0.7%. These forecasts do not take into account the expected positive impact of completing Our Westfield Living Centres are regarded as valued social the remainder of the up to $800 million security buy- infrastructure and at times of emergencies, are regarded back program. The distribution for 2020 is forecast to be by local authorities as places of refuge and shelter.