Thank you for standing by, and welcome to the Scentre Group 2023 half year results update. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you'll need to press the star key followed by 1 on your telephone keypad. Please note that this conference is being recorded today, Tuesday, the 22nd of August, 2023, at 9:00 A.M. Australian Eastern Standard Time. I would now like to hand the conference over to Mr. Elliott Rusanow. Please go ahead. Good morning, everyone. I would like to acknowledge the Gadigal people of the Eora Nation as the traditional custodians of the land I am on this morning. Recognizing that many of us are on lands of different traditional custodians, I pay my respects to each of their elders, past, present, and emerging. Welcome to Scentre Group's 2023 half year results briefing. I am joined today on the call by our Chief Financial Officer, Andrew Clarke, together with Lillian Fadel, Group Director of Customer, Community, and Destinations, John Papagiannis, Group Director of Businesses, and Stewart White, Director of Development, Design, and Construction. Our strategy is to create places that more people choose to come to more often and stay at for longer. It is based on the premise that the more time people spend at our destinations, the more opportunity and value we create for other businesses to interact with customers. The better we are at achieving this, the more earnings and distributions we will generate and continue to grow for our security holders for the long term. The results that we have achieved for this half demonstrate this. So far this year, to the end of last week, we have seen a 9.8% increase in customer visitations to 314 million. Our business partners achieved record annual sales of AUD 27.8 billion to June 30, 2023, an increase of AUD 4.9 billion or 21.6% compared to the same period in 2022. Business partner sales for the first six months of 2023 were AUD 13.1 billion, an increase of 9.1% over last year and 13.6% more than the same period in 2019. We have generated a 10% growth in Net Operating Income to AUD 972 million in the first six months of this year, the highest level the group has ever achieved in a first half period. Our Funds From Operations were AUD 556.6 million for the first half, up 1.5% over the same period last year, and 13.3% higher than the second six months of 2022. Our distributions to security holders increased by 10% to AUD 0.0825 per security for the six-month period. I would like to thank our team for their contribution to executing our strategy and delivering these results. By focusing on attracting more people to our 42 Westfield destinations located throughout Australia and New Zealand as many times as possible, and for as long as possible, we create the most efficient platform for businesses to connect with more customers. Our growth in customer visitations has been driven by our unique and deliberate activation program, including our strategic partnerships with Disney and Netball Australia, together with many localized activation events, creating extraordinary experiences for our customers at our Westfield destinations. This week, we announced a new partnership with Live Nation, which will bring exclusive, live, and free music performances into our destinations, creating even more reasons for people to spend their time with us. As a result, we have been able to drive demand from business partners wanting to take space at our destinations and connect with customers. During this half, we completed 1,567 leasing deals and welcomed 585 new merchants, including 125 new brands to our portfolio. We have seen this strong leasing deal activity continue since the end of June. Portfolio occupancy has increased to 99% at 30 June, compared to 98.8% last year at 30 June. We maintain our standard lease structure with fixed-based rent and annual escalations, the vast majority of which are linked to inflation. On average, specialty rent escalations have grown by 8.1%, and leasing spreads on new leases signed during the first half were +2.6%. Of note, average specialty occupancy costs are now 16% of specialty sales, compared to 18% in 2019. We collected AUD 1.332 billion in rent during the half, representing 103% of billings and AUD 82 million more than the first half of 2022. We continue to make progress on strategic customer initiatives, particularly our Westfield membership program, which has more than 3.5 million members, an increase of 750,000 since June of last year. The group has invested AUD 19 million in strategic customer initiatives during the period, including our membership program. Operating as a responsible and a sustainable business underpins our strategy. During the half, we released our 2022 Responsible Business Report, Modern Slavery Statement, and our first Climate Statement. Progress continues on our pathway to achieve net zero by 2030, with the recent completion of rooftop solar installations at Westfield Fountain Gate and Knox. Rooftop solar installations are also underway at Westfield Hornsby and Tuggerah to be completed by the end of this year. Together, these installations will more than double the group's solar generation capacity from 5.9 MW to 12.2 MW. Investing in our destinations to ensure they remain the places where people choose to spend their time is very important in how we will continue to achieve our strategic ambitions in the longer term. In June, we successfully opened stage two of our AUD 355 million investment at Westfield Knox, of which our share is AUD 178 million. Visitation since stage two opening is already up 13%. We look forward to opening the remainder of the center by the end of the year. Recently, we agreed to exit the Central Barangaroo Consortium and better position us to pursue our core strategic opportunities, including the AUD 4 billion of future development pipeline opportunities. I will now hand over to Andrew Clarke to present the financials. Thanks, Elliott, good morning, everyone. Funds From Operations for the six-month period was $557 million, or $0.1074 per security, which grew by 1.5% compared to the prior corresponding period. The interim distribution for the period is $428 million, or $0.0825 per security, up 10% and in line with guidance. The strength of these results have been underpinned by our continued focus on driving more customer visits more often and for longer. The value of our standard specialty lease structure, having average annual escalations of CPI plus 2% and strong gross rental collections. Net Operating Income for the period was $972 million. This is an increase of 10% over the first half of 2022. This includes an AUD 5 million release and the Expected Credit Charge provision as a result of delivering strong cash collections. This compares to an AUD 14.3 million charge booked in the first half of 2022. Underlying Net Operating Income, excluding the release of the Expected Credit Charge, grew by 7.7% for the period, which was primarily driven by inflationary linked specialty annual retail escalations of 8.1%, an increase in occupancy to 99%, and 10% growth in net ancillary income, which is now in line with pre-pandemic levels. Operating and leasing capital was AUD 76 million for the first half. During the half year, AUD 1.3 billion or 103% of gross rent billings were collected, representing an increase of AUD 82 million compared to the prior corresponding period. Net trade debtors, after the Expected Credit Charge provision at 30 June 2023, were AUD 49 million. This represents a reduction of AUD 102 million compared to 30 June 2022. During the period, the group repaid bonds of AUD 745 million and redeemed the AUD 162 million Westfield Southland Property Linked Note with existing bank facilities. Extended and raised new banking facilities totaling AUD 1.6 billion. As a result, the group has AUD 3.9 billion of available liquidity, which is sufficient to cover all debt maturities until the end of 2025. The weighted average interest rate for the six-month period was 5.5%. This consists of an average margin on total bank, bond, and hybrid notes of 3% and an average base interest rate of 2.5%. Excluding the subordinated notes, the weighted average interest rate for the period was 4.6%. The group continues to actively manage its interest rate hedging position. During the period, we increased our hedge coverage to 93% at June 2023, and 89% at December 2023, both at an average fixed rate of 2.39%. The weighted average interest rate is expected to be approximately 5.6% for the full year. The statutory result was a profit of $149 million, which includes an unrealized property revaluation decrease of $393 million. All properties were revalued during the half year, of which approximately 50% being externally valued. Overall, property valuations decreased by 0.6% during the period, driven by an average 20 basis point softening of capitalization rates, partially offset by growth in Net Operating Income. This includes the revaluation of Westfield Knox following the opening of stage one and stage two of the redevelopment. The weighted average capitalization rate for the portfolio was 5.13% at June 2023, compared to 4.93% at December 2022. We have provided on slide 22 a summary of the values by property. Thank you. I will now pass you back to Elliott for closing remarks. Thank you, Andrew. We will continue our focus on creating destinations where people want to spend their time, enabling more brands and businesses to connect with more customers. The group is well-positioned to continue to deliver long-term growth in both earnings and distributions. Subject to no material changing conditions, the group reconfirms that it expects FFO to be in the range of AUD 0.2075-AUD 0.2125 per security for the full year of 2023, representing 3.4%-5.9% growth for the year. This equates to growth in FFO for the second half of 2023 of between 5.6% and 10.9% compared to the second half of 2022. Distributions are expected to be at least AUD 0.165 per security for 2023, representing at least a 4.8% growth for the year. I will now open the call for questions. Thank you. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the headset to ask your question. Your first question comes from Richard Jones from JPMorgan. Please go ahead. Good morning. Thanks, Elliot. Just interested in the guidance where you're calling, just back the envelope, looks as though the second half FFO is implied to be down between 2% and 7%, based on what the first half result delivered. I understand you're calling the weighted average cost of debt up 10 basis points, and that there was a 5 million ECC, you know, right back in the first half. Just wondering why what else is kind of holding that back from not being a stronger second half? Yeah. Hi, Richard Jones, it's Andrew Clarke here. Yeah, look, the main drivers of growth in the second half, we are expecting NOI to continue to grow and to, and to have growth on the first half of 2023. We aren't assuming any further release of the Expected Credit Charge in the second half, so that is the AUD 5 million that was released in the first half, so that is a bit of a drag. Offsetting that growth at a macro level is really the increase in the interest expense. That's, that's really the main driver. The other line items, overheads, we'd expect to be relatively flat, project income, relatively flat. We would expect the tax expense to increase slightly based on the weighting of the ancillary income that we generate. A lot of that is generated in the second half of the year, higher weighting, so there's higher tax. Then we're also expecting property expenses to grow at a, at a slightly higher rate in the second half as well. Okay. That, that's very thorough. Thank you. Just to clarify, the circle you've got billings at 103%, that's not coming through income, right? That's just a cash collection that you're talking about? Yeah, that's right. Basically, the amount of cash that we collected in the first six months is effectively 103% equivalent to what the billings were, and that's why our debtors have come down. As I spoke, debtors have come down compared to this time last year by AUD 102 million, and net debtors are sitting at AUD 49 million. Okay. Then, and then, I mean, obviously, the operating metrics were really strong. Just, just interested, you know, what, what, if any, impact are you seeing from, you know, rising cost of living pressures? Can, can you maybe talk about whether June, July sales have, have shown any, any pullback and, and any change in, in obviously the really strong leasing spreads that you announced today? It's Elliott speaking. Richard, what we have seen is, as I said, the continuation of customer visitations each week are higher. I think throughout the course of the entire year have been higher, ranging somewhere between, call it, 6%-10% week on week. They do bounce around a bit. But each week this year, continuing up until the end of last week, continues that growth. We haven't seen any pullback in customer visitations. We have seen sales for the June, July period moderate in terms of their growth rate. But bearing in mind that June and July sales in 2022, I believe, were somewhere in the order of 13% or 14% higher than the previous year. The other component to all of that is, as I mentioned, the level of leasing activity we're seeing has not pulled back. More businesses are signing. They're signing long-term leases with us. I didn't say this on the call, but our average lease term has increased from 6.8 years to 6.9 years. The level of activity that we're seeing, both from a customer visitation standpoint, from the record sales that are being generated at the center, the AUD 27.8 billion, continues. We've signed well over 300 new leasing deals since the end of June. That momentum continues. Good one. All right, thanks for your update. Thank you. Your next question comes from Lou Pirenc from Jarden. Please go ahead. Yes, good morning. Just a quick follow-up on Richard's question there on the credit chart. The AUD 5 million released, you've booked at above the line? You can see that coming through in the property expenses line and the P&L that we provide on the slide. It comes through as a favorable movement in the property expenses line. That's AUD 5 million in this six-month period, and that compares to a charge position that went through in the six-month period to 2022 of AUD 14.3 million. Okay. Thank you. Now, I, I thought you booked all of that b- below the line previously, but clearly not. Just on development, can you just give an indication of kind of how you're seeing the environment to, to start new Knox-like. ... developments and what we should really expect in terms of CapEx and, and returns? Yeah. Hi, Lou, it's Elliott. I think that the next big project that is on our pipeline would be Booragoon in Perth. That's probably likely to start, if not late next year, probably in 2025. What you're really seeing is the, the large, large scale developments, pull back in terms of additional new supply. I think that we're seeing the benefits of a pullback in supply generally over the last few years come through in the much stronger operating metrics that are being delivered. I would expect that limited supply will be added in a kind of a large scale to the, you know, a lesser number of projects, such as what we've talked about with Knox, Booragoon, and probably a lot more focus on investing capital to extract better returns out of real powerhouse assets that we have within the portfolio, the things like Parramatta, Bondi. You know, it's, it's about driving efficiencies, I suppose, or creating spaces for more businesses and more diverse range of businesses to interact with the customers that we're generating and keep generating growth of, to come to our centers. That's clear. Thank you. Your next question comes from Sholto Maconochie from Jefferies. Please go ahead. Oh, hi, and congrats on a good result. Just playing on the ECC, it looks like the margin. Thanks for providing the color. You had about a AUD 19 million benefit, if you take the AUD 14.3 million and AUD 5 million. Looks like your NOI margin went up about 100 basis points to 78.1%. Is that set to be sort of flat for the full year, or sort of moderate a bit in the second half from those higher property expenses? Hi, Sholto, Andrew Clarke here. You're right that effectively an AUD 19 million swing between the Expected Credit Charge in the first half of last year and the AUD 5 million release this year. As I spoke about in our in my notes, that the underlying NOI growth, if you exclude that, is 7.7%. A lot of that has been driven by the growth in the rental escalations of 8.1%, our increase in occupancy to 99%, and we've also seen ancillary income return to pre-pandemic levels, there was a 10% growth in ancillary income as well. In terms of the margin that you referred to, we would expect- Mm. that to be pretty similar in the second half. Maybe slightly down, just because, you can see that our expense growth in the first half is relatively low. Well, that makes sense. Thanks for that. Then just on the, I think you had very strong escalator growth, especially 8.1. What, what's CPI? I think the June CPI was six. Should we assume a similar level, specialty rental growth, in the second half? In terms of the escalations, we are assuming that inflation does slow a bit from here or moderate, sorry, in terms of growth. Still, probably around the 5.5% growth, 5.5% of inflation in the second half on average. 7, 7.5 to 8, depending on what it is. Okay. Right. Okay. All in. All right. Just on the, the sales, I noticed, you look up, sales are up 9.1% for the six months, and they slowed from 14.4 from first quarter, and specs were 12.1 for the seven. What, what's the sort of... Do you have the number for the sales, the, the second quarter, 2023 total sales and specialty sales? What, I can work it out, but do you have it, at hand? Yes, it's... I was looking at it here. It's around 4.5%, was the growth in total sales for the second, for that, second three months. Was, what was it, just the similar categories that others reported, like homewares, sort of furniture, and sort of fashion and apparel that were weaker in the specialties, 'cause supermarket's broadly stable. What was the sort of drag, if you, if you don't mind? I think, yeah, fashion, and homewares were a drag, but offsetting that is, and we have, as you know, over time, increased our, our space to these categories that have grown dramatically. Things like dining… Yeah ... health and beauty, leisure and sports, things that are consumed on site. Our premise being that we're creating places where people are spending their time, and therefore, they're experiencing, consumption, I suppose, of their, of what they do when they're spending their time with us. Bearing in mind that, the, you know, drag, so to speak, in, in what we've talked about with fashion and homewares, has come off an incredibly high base that it's compared to from last year. Mm. Which was a, obviously was a bounce from the, pandemic, period. Yep. That makes sense. Then just finally, what's the passing rate on the bonds? I've been looking in the accounts for the expiring in 2023 and 2024. What you're currently paying on those? Yeah, hi, Sholto. On, on average, that'd be around 2.5% plus 2.5%-2.75% margins. Broadly in line with what you can borrow. Okay, that's great. Thanks very much. Thank you. Your next question comes from Ben Brayshaw, from Barrenjoey. Please go ahead. Yeah, hi, guys. I was wondering if you could just discuss your approach to the refinance of the senior bonds coming up, and just how you're seeing offshore funding markets? ... Yeah, hi, Ben. Andrew here. Look, one of our strategies is, has been to continue to, to have a, an elevated level of liquidity. As I said, we've got AUD 3.9 billion of liquidity. What that does is it gives us significant flexibility in terms of how we refinance those bonds. If, if we decide to, we can use that liquidity. Effectively, you'd be swapping expensive bonds for much cheaper bank facilities, and we've done that year to date. At the same time, we continue to monitor the, the debt markets to look at opportune times where we may, look to issue new bonds, longer term bonds as well. We- we're keeping, keeping, keeping it open in terms of how we approach that and, and keeping flexibility for that. Just on the timing of especially rent reviews, can you just touch on how they're distributed over the course of the year, and whether there is a second half skew in relation to the CPI upwards? Yeah, there's generally a, a slight second half skew. A lot of that comes from the, the historically of when redevelopments have opened. You generally see a lot of our redevelopments open in the second half of the year. Then the lease anniversaries, there's a slight weighting to lease anniversaries in the second half of the year, but it's, it would be something like 45%, 55% weighting. Yeah. Great. Okay. Thanks, guys. Thank you. Your next question comes from Grant McCasker from UBS. Please go ahead. Hi, good morning, Elliott and Andrew. Just on the development CapEx. I just wanted to just clarify your comments. You're basically saying no major developments until sort of late 2025. Can you sort of just outline the level of CapEx you'll be spending on the portfolio, be it majors, conversions, any other sort of refurbishments across the portfolio? Just as a slight extension, one of your major tenants being David Jones went through a major change of ownership. Can you provide us an update on any change of lease terms with that tenant? Yeah. I think that just to clarify the comment, when we're talking about major development starts, I, I mentioned late 2024, probably sometime in 2025, not late 2025 necessarily for Booragoon. The, as Andrew guided, the run rate of maintenance and leasing CapEx is around AUD 150 million per year. A lot of that is, from a maintenance point of view, actually being spent in, call it ambient upgrades, to drive a better experience for the customer, not, you know, maintenance in its pure, pure form sense. The CapEx, obviously, in this current half, includes the, the spend at Knox and then smaller amounts for pre-development work. I think that the, you know, the, that run rate of, yeah, I'm now hazarding a guess, it's AUD 150 plus whatever we then spend on incremental, you know, lesser, bigger project, major development works, will probably be the run rate until we start the next major project at Booragoon. With respect to David Jones, I'm not going to comment specifically on any particular group, but it's fair to say that, that we're working well with all the groups that are business partners. You can see that in the operating results, our occupancy is up, and we continue to look to continue to grow all the businesses that operate with us, including David Jones. Okay, thank you. I just want to check, your cash flow from investing activities for the, the half is AUD 230 million. Let's annualize that, you're nearly at AUD 500 million. You're calling out AUD 150 million of leasing and maintenance CapEx. I'm just trying to work out where the other AUD 200 million-AUD 300 million is being spent. Yeah. Hi, hi, Grant. Andrew here. In terms of the first half year, I spoke about operating and leasing capital is AUD 76 million, and Elliot touched on that. We've also spent a development capital. That's, that's the active development, so we've got a spend at Westfield Knox is, is the main active development that we have running at the moment. There's also some sundry projects. At the moment, there have been a number of major tenants that we've been either downsized, and/or replaced on occasion. There is some capital spend there. Then there's also the pre-development work that we continue to do, which is on that AUD 4 billion pipeline that we, we talk about. Yeah, the other item that you may be referring to, is the PLN. We did redeem the Westfield Southland PLN. I know that's in financing, but I was just looking at investing cash flows. Okay. Yeah. Thanks for that further clarity. Your next question comes from James Druce from CLSA. Please go ahead. Hey, good morning, Elliott. Good morning, Andrew. First, first question, how much development income was, was coming through in, in this first half? Yes, Andrew here. James, hi. The amount of development income is not a lot at this stage. We've only we had the first stage of Westfield Knox come through and then the second stage also open. I think from memory, it's about just under 1% of the 10% growth that we had in Net Operating Income. Okay, and how is that expected to double in the second half, or? It'll, it'll be slightly higher than that. The, the remaining stages are towards the end of, of this year. Okay, that's clear. As a rule of thumb, how do we think about the seasonality? I mean, one of the early questions you sort of touched on, the bias of leases, coming through in the second half. There's also a skew to ancillary income. What's the rule of thumb that we should be thinking about on a NOI skew between first half and second half? They're equal. There, there's no, there's no set formula for that, James. It depends on, on what's happening with occupancy. It depends on what's happening with escalations. It depends on what, what's happening around the portfolio in terms of sundry projects. The, the main skew is really the escalations, and, and I spoke about that before, so it's slightly weighted to the second half. The other, slight weighting to the second half is ancillary income because of the seasonality of that, in particular in Q4, with the Christmas trading period. All the other movements, there's no seasonality to that. It depends on each individual asset and what's actually happening at the asset. So the timing of, of a, a, say, a, a, a store closing versus the timing of a store opening. The other part to that is that we have less than 1% of our income tied to turnover. And so seasonality with regards to sales is, it doesn't skew as might be seen in other places. Yeah, okay. One, one final one, if I, if I may. If, if I just look at the, the second half revenue from last year, sort of how you put it together in your, your pres, that was kind of AUD 1,237 million. If I look at the first half 2023, that's also AUD 1,237. Once you take off expenses, you're, you're talking about sort of some, some decent growth, but I thought expenses were, were going against you. I'm, I'm just wondering why there isn't more growth from second half last year to first half this year? Well, second half last year was a, was a strong period. You recall there was significant growth that came through in the second half of 2022, compared to the first half of 2022. We have seen growth in Net Operating Income in the first half of 2023 over the second half of 2022. If you look at the amount of Net Operating Income, there was AUD 972 million of NOI in the first half of 2023, compared to AUD 909 million in the second half of last year. We would look at that as pretty good growth. Yeah, I'm looking at it on the property revenue line, just above that. Maybe, maybe we'll take it offline. Yeah, sure. Thanks, James. Your next question comes from Caleb Wheatley from Macquarie Group. Please go ahead. Hi, Elliott and Andrew. Thank you for your time this morning. I'm just following up on a couple of questions from earlier. Just on the ancillary income component of NOI, can you give us a feel for how much of that NOI line is comprised by ancillary income? Given, I guess, it's been a pretty strong recovery there, how should we be thinking about that ancillary income on a go-forward basis in second half 2023 and 2024 onwards, please? Hi, Caleb, Andrew here. Ancillary income, I spoke about that, is, is 10% growth over this time last year. It's also now in line with pre-pandemic levels. We would expect, at the rate that, that, that part of our business is performing, that we'd expect that to continue to be strong in the second half of the year. The second part of your question around what proportion of NOI it is, I think is what you're asking. It sits at around 9%, 9%-10% of, of NOI. In terms of 2024, we look, we're not providing any guidance at this stage, but if the operating conditions continue as they are, and we continue doing the things that we're doing to create more customer visits more often for longer, we'd expect that area of the business to continue to grow like we expect the rest of our business. Great. Thank you. Now, that's, that's really helpful. Just following up on, on your comments around some of these potential larger development projects that might come in into the future, the likes of a Parramatta or a Bondi, I know it's a, a long way off, potentially, but how are you thinking about, the sort of development that might be? Is that going to, to be just on a, a retail focus, or are there other potential sub-sectors, i.e., office or, or build-to-rent, that might form part of that development discussion on those sorts of assets? Well, I think, Elliott here, sorry. The, the focus on those are, are actually what capital we should be spending to actually grow market share of those assets in terms of what people are spending their time on and their consumption dollars doing. I think that the way to think about the incremental spend at something like a Parramatta or a Bondi or many of the assets, is actually diversifying the businesses that would be interacting with customers. Yeah, more lifestyle, entertainment, health, medical, potentially education. It's not so much building more horizontal or vertical space. It's probably more about redeploying existing space in a much better way in line with what people are actually spending their time doing and spending on. Okay. No, great. That's clear. Then just the final one from me. I think six months ago you mentioned, potentially considering selling down interests in, some of the 100% owned assets. Just wondering if there was, any update on that front? Seems like the, the retail market in particular is still relatively liquid, at least compared to some of the other sub-sectors. It'd be key to get an update on how you're thinking about potential opportunities there as well, please. I think at the time we said that, and it's still the case, that we look at potential joint venturing of assets as a funding source, and the timing of which would be determined by the need for funding. I think that that still remains the case, and we really have nothing further to add other than highlighting the opportunity from a funding point of view is our 100% interest in 12 assets, which I think equates to some AUD 20 billion of assets on our balance sheet. Right. Now, that's clear. That's all for me this morning. Thank you again for your time. Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Well, if there's no further questions, thank you for your time today, and, if you do have any questions, please don't hesitate to reach out to the team and, and follow up. We wish you, a good day. Thank you for listening. Bye. That does conclude our conference for today. Thank you for participating. You may now disconnect.