Larry Schlesinger | 19 February 2013

Federation Centres emerges from Centro with stronger balance sheet and back in the black

Shopping centre owner and manager Federation Centres has reported an interim net profit $115.91 million for the six months to December 31 - its first complete first-half results under its new brand following the restructuring of the debt-laden Centro business.

The profit compared with a loss of $100 million recorded in the previous corresponding period, when it was known as Centro Retail Australia.

Federation Centres also reported a healthy balance sheet with its gearing down to 29.9% after entering into a number of joint-ownership agreements.

Last week, in its first significant deal under its new name, Federation Centres agreed to sell half-shares in four malls and a convenience centre to the Industry Superannuation Property Trust (ISPT), one of Australia’s biggest unlisted property trusts for $371.4 million.

This follows Federation Centres selling 50% interests in three shopping centres - Galleria (WA), The Glen (Victoria) and Colonnades (SA) - to the Perron Group for $690 million in June last year.

Federation Centres expects its gearing to fall to 24.2% once it completes the ISPT transaction.

The results show the group manages 78 properties in its portfolio.

It owns 40 malls outright, 34 are parts of syndicates and seven are joint-ventures.

The portfolio is valued at $6.6 billion and has an occupancy rate of 99.5%.

It is well spread across Australian metro regions with the highest presence in NSW (34%), Victoria/Tasmania (25%) and WA (22%).

Federation Centres reported 2% growth in retail sales.

It has a development pipeline over five years of $1.1 billion – with Federation Centres' share being around half of this at $591 million.

Federation Centres also continues to simplify its previously complex mix of unlisted shopping centre syndicates with $548m of assets acquired by the group and $438m sold on market.

The company expects $1.2bn of assets expected to be transacted by 2015 with $500m to be sold on market and $700m potentially acquired by the group, subject to further capital recycling initiatives

Chief executive Steven Sewell said the company had “entering a new era” where it can utilise its sound financial position and work with its strategic alliances to enhance its portfolio of Australian shopping centres, “with the clear objective of providing sustainable returns for investors”.

“The portfolio continues to benefit from a strong exposure to non-discretionary spending. All retail categories showed growth, although department store sales remained subdued.

“Supermarkets and specialty retailers, which make up approximately 75% of Federation Centres’ total annual sales, achieved annual sales growth of 1.7%," he said.

"The mini major category, with 8% of sales, increased turnover by 8%. Department store sales, which represented 3% of turnover, improved by 0.1%.

“Full-year earnings are now forecast, subject to any unforeseen events, to be in the range of 15.5 to 15.75 cents per security with distributions paid to investors representing a payout ratio of between 80% and 90%"

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