Scentre Group Increases Liquidity by $3.1bn

In the face of unprecedented economic headwinds, Scentre Group has obtained additional unsecured bank facilities to boost its liquidity by $3.1 billion.

The additional support from its lenders has a two-year duration and provides the retail landlord with further funding flexibility in an uncertain economic environment.

The announcement, made by chief executive Peter Allen, bouyed the group’s shares, which lifted by 12 per cent on Wednesday.

The group currently has $2.5 billion of bonds and bank facilities expiring in December of next year.

The shopping centre giant, which owns 42 Westfield shopping centres in Australia and New Zealand, currently has total assets of $40 billion and assets under management of $56 billion.

More than 65 per cent of the Australian population live within 30 minutes of a Westfield Living Centre, however, strict new coronavirus social distancing rules have forced many retailers under mounting financial pressure.

The company said in a March update that it had pulled its earnings guidance under the basis that the trading environment continues to simply be too uncertain to predict.

Last month, Scentre posted a full-year net profit of $1.18 billion, down 48.4 per cent from $2.28 billion a year ago and a lift in Funds From Operations to $1.34 billion up just 0.4 per cent from its 2018 result.

The company also said it was pushing ahead with a $3 billion development pipeline after divesting $2.1 billion worth of assets over 2019.

Analysts are closely watching the retail sector with the emergence of ecommerce reshaping consumer habits with online shopping increasing by 14 per cent annually for the past three years—four times faster than traditional retail sales growth.

With most of Australia under lockdown, the percentage of shoppers spending more online versus offline is set to increase exponentially, with consumers forced from bricks and mortar stores.

Global ratings agency Moody's weighed in revising the rating outlook to negative from stable.

“The increase in the group’s liquidity demonstrates Scentre’s strong access to capital, and helps reduce refinancing risk through 2021,” Moody’s Investors Service vice president Matthew Moore said.

“But while it's improved liquidity position removes some risk, we expect further deterioration in the retail environment from the coronavirus pandemic will pressure Scentre’s revenue, income and leverage metrics.”

Moody’s also downgraded its outlook on Vicinity Centres, which it said is exposed to the declines in tourism.

While government relief measures have aimed to mitigate some of the impact of the coronavirus outbreak on Australian businesses, banks are still attempting to understand the scale of debt they will need to provide for in response to COVID-19.

Under a broad-based recession, sluggish recovery and perverse policy outcomes—debts across the four major banks could surge to $120 billion over the 18-month period.