Please note that this conference is being recorded today, Tuesday, August 25, 2026, 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. Welcome to Scentre Group's half year 2026 results briefing. Before we begin, I would like to acknowledge the traditional custodians of the land I am on and pay my respects to their elders, past and present. I am joined today on the call by our Chief Financial Officer, Andrew Clarke, our Chief Operating Officer, Lillian Fadel, and John Papagiannis, Group Director of Businesses. Our focus is to continue generating long-term earnings growth from our Westfield business in Australia and New Zealand and create significant additional value from our substantial land holdings. We compete for people's time. The more people who come to our Westfield destinations, the more often they come, and the longer they stay, the more earnings we can generate for our security holders. To do that, we need to keep giving people more reasons to choose to spend their time with us.
That means continually improving our destinations, broadening the range of businesses within them, and creating experiences that bring people together. This has been the hallmark of our success for more than six decades and remains as important today as when the company was founded. The connection to our earnings is clear. More people visiting our destinations supports more sales for our business partners. Growing sales attracts more businesses that want to be in our destinations. That demand supports occupancy, rent, and leasing spreads, and ultimately earnings. We have seen that play out since 2022 following the COVID pandemic. Today, 144 million more customers visit our Westfield destinations annually than in 2022, increasing from 408 million to 552 million annually, and this continues to grow. Today, on average, more than 10.5 million people visit one of our 42 Westfield destinations across Australia and New Zealand every week.
Our business partners generate AUD 7.4 billion more sales annually than in 2022, increasing from AUD 22.9 billion to a record AUD 30.3 billion in annual sales. Occupancy has increased from 98.8% at June 2022 to 99.8% today. While growing the existing business, we have continued to invest in it. Since 2022, we have invested more than AUD 1 billion across our destinations, including significant projects at 12 destinations that are either completed or underway. Over the same period, we have introduced AUD 3.1 billion of new joint venture capital from long-term institutional partners. This has allowed us to release capital from selected assets while continuing to manage and operate them, strengthening our balance sheet and invest elsewhere in our business. Importantly, while investing more than AUD 1 billion in our destinations and introducing AUD 3.1 billion of joint venture capital, we have continued to grow earnings per security in every year throughout this period.
We believe investing for the future should not come at the expense of growing earnings for our security holders today. Our earnings per security today are more than 15% higher than we delivered in the year to June 2023, the first full year of stability post-COVID. For us, that is an important measure of whether we are creating value. The earnings growth we have delivered and the trajectory we are on are the result of the strategy we have executed and continue to pursue. Our earnings growth is being generated by the performance of our business today. It is not reliant on assumptions of future stabilization or development outcomes. Our objective is not simply to grow the size of our business. We will grow, develop, and deploy capital where we believe doing so will enhance long-term returns and value for our security holders.
We expect earnings to continue to grow. At the same time, we have another significant opportunity. Our Westfield destinations sit on or are adjacent to more than 670 hectares of land, close to already built and in place transport, plus water, energy, and essential infrastructure. We are looking at how we can use that land to increase the economic activity around our destinations, including through a significant pipeline of mixed use and residential opportunities. This is additional to the earnings growth being generated by our Westfield business today. For the first six months of 2026, funds from operations were AUD 612 million, up 4.4%, and distributions to our security holders were AUD 0.09215 per security, up 4.5%. So far this year, we have welcomed 347 million customer visits, 12 million more than the same period last year and representing a growth of 3.5%.
Over the past 12 months, 552 million customers visited our Westfield destinations, a record for our business. Today, our Westfield destinations are more relevant to our customers and communities than ever before. We continue to give people more reasons to visit through partnerships, events, and experiences. Our destinations are places where people come together, not simply where people shop. During the half, we partnered with SBS and SEN to bring the FIFA World Cup to our Australian communities through our Football for Fans experience. Our SBS fan zones attracted 218,000 visits across the tournament. Earlier this month, we announced a partnership with the NFL ahead of its first ever regular season game in Melbourne in September. As the official shopping destination partner and exclusive red carpet partner, we will stream the game live and host free NFL-themed activities across all 42 destinations in Australia and New Zealand.
Through our ongoing partnership with The Walt Disney Company, we brought more exclusive experiences to our customers, including "Toy Story 5" and "Star Wars" events. Customers enjoy visiting our destinations to see their favorite artists live. Together with Sony Music, we hosted Amy Shark live at Westfield Tuggerah and Westfield Knox. These partnerships and events give people reasons to spend their time at Westfield that go well beyond traditional retail. During the half, we also continued to grow our relationship with our Westfield members. Westfield membership now exceeds 5.2 million people. This week, we will launch Westfield World of Wins, a new gamified experience accessible through the Westfield app, giving members the opportunity to win thousands of prizes from businesses across our destinations. It gives our members another way to engage with our Westfield destinations and our business partners, whether they are physically at one of our destinations or not.
We will continue to use the strength of the Westfield brand and our network of 42 destinations across Australia and New Zealand to bring more people to our destinations. More people visiting and spending time at our destinations is translating into sales through our business partners. For the 12 months to 30 June 2026, business partner sales reached a record AUD 30.3 billion, AUD 1 billion more than the same period last year. Over the 12 months, business partner sales grew by 4.2%, and specialty sales grew by 5.4%. For the first six months of 2026, business partner sales grew by 3.7%, and specialty sales grew by 5.1%. Over the most recent three months, specialty sales were 4.7% higher, and in July, specialty sales were 3.6% higher than the prior corresponding period. Growing sales continues to attract businesses that want to be in our Westfield destinations.
Occupancy is 99.8%, the highest June level in more than a decade. Rent escalations increased by 5.5% in the six months of the year. We completed 1,401 leasing deals with average positive re-leasing spreads of 3.7%. This is the connection between our operating strategy and our earnings. We attract more people, our business partners grow their sales, more businesses want to be in our destinations, and that creates demand for space. We continue to invest in our Westfield destinations because they need to keep changing with our customers and the communities they serve. In recent years, we have completed redevelopments at Westfield Sydney and Burwood in Sydney, Knox and Southland in Melbourne, Tea Tree Plaza in Adelaide, and Mt Gravatt in Brisbane. All of these destinations are performing well. We have also more than AUD 4 billion of future redevelopment opportunities.
We are targeting yields of between 6% and 7%, and incremental returns of between 12% and 15%. We will pursue these opportunities where the returns make sense for our security holders. We continue to enhance the customer offer at Westfield Bondi in Sydney to further strengthen its position as one of the world's preeminent destinations. Works are progressing on our AUD 240 million redevelopment to deliver an elevated dining, entertainment and lifestyle precinct on Level 6 of the center. This follows the successful repurposing of former department store space on level 1 to create a new health and fitness precinct. The transformed Level 6 precinct will be anchored by an upgraded Event Cinemas, a new Kingpin Entertainment offer, and unique dining experiences. It will open in stages from late Q4 of this year.
Importantly, Westfield Bondi has continued to trade throughout the redevelopment, and both visitation and sales have continued to grow. In Western Sydney, we commenced our AUD 30 million redevelopment at Westfield Penrith, expanding its entertainment and lifestyle precinct and Hoyts Cinema complex. At Westfield Tuggerah in the Central Coast of New South Wales, we are repurposing former department store space to introduce Timezone, JD Sports, and a relocated Rebel. These businesses will open progressively from the third quarter of this year. During the period, we also completed the residential component of the redevelopment above Westfield Sydney on behalf of Cbus Property. We will keep investing in our Westfield destinations where we see the opportunity to attract more people, grow sales, and generate attractive returns. Our Westfield destinations are already town centers for their communities. They sit on more than 670 hectares of land, close to transport and existing in-place infrastructure.
Retail, dining, entertainment, and services are already there, and hundreds of millions of customer visits are already taking place there every year. This gives us an opportunity to add to the economic activity already taking place around our destinations. We are working with governments across Australia and New Zealand on how this land can also contribute to housing supply and make housing more accessible to more people. Over the past 24 months, we have identified and progressed a significant pipeline of potential dwellings. This year, that pipeline has increased from 20,200 to 25,600 dwellings that are approved or in the advanced stages of planning. At Westfield Warringah, we have substantially progressed plans for a new town center with the potential for up to 1,600 dwellings.
At Westfield Eastgardens, also in Sydney, we are exploring the opportunity for 1,300 dwellings as part of an integrated mixed-use development and have lodged an expression of interest with the Housing Delivery Authority of New South Wales for a state significant development. At Westfield Chermside in Brisbane, we have submitted a master plan with the Brisbane City Council for the potential for up to 4,000 dwellings. At Westfield West Lakes in Adelaide, we have begun planning for the potential delivery of up to 2,000 dwellings. The South Australian Government has approved our proposal to commence a formal master planning process for West Lakes. There is an important distinction here. We don't need these future opportunities to generate earnings growth from our business today. Our existing Westfield business is already growing earnings. The opportunity across our land holdings gives us another way to create even more value over the longer term.
Thank you, and I'll now hand over to Andrew Clarke.
Thanks, Elliott, and good morning, everyone. Funds from operations for the period were AUD 612 million. This is an increase of 4.4% over the first half of 2025. This is underpinned by operating profit growth of 4.5%, primarily driven by strong operating results, with average specialty rent escalations of 5.5% and positive leasing spreads of 3.7%. Management fee income grew by 5.8% for the period, driven by underlying growth in property revenue and additional fees following the joint venturing of Westfield Chermside and Westfield Sydney. Interest expense reduced by AUD 58 million, or 14%. This reflects the repayment of borrowings following the joint venture transactions, as well as the part period benefit of refinancing at significantly lower margins, all remaining senior and subordinated notes issued during the pandemic in 2020.
The increase in tax expense of AUD 4 million is primarily due to our higher management fee income and lower interest expense in New Zealand. Operating and leasing capital was AUD 86 million for the first half. As Elliott highlighted, our focus is to continue investing in our Westfield destinations so they remain relevant to our customers and communities and continue to generate long-term earnings growth. A key part of that is how we manage capital. We have demonstrated our ability to introduce joint venture partners into selected 100%-owned assets while continuing to manage those assets and retain exposure to their performance. That capital can be reinvested into the business, into our destinations, the customer experience, and opportunities that strengthen the quality and earnings potential of the group, creating long-term returns and value for our security holders.
During the period, the group has made significant progress with its capital management strategy, increasing the group's balance sheet capacity, lowering its funding margin, and increasing future period interest rate hedging. The group successfully refinanced AUD 4.1 billion of high-cost borrowings. This included AUD 2.3 billion of senior notes and AUD 1.8 billion of subordinated notes. The group also issued a AUD 750 million six-year senior note in the Australian domestic market at a margin of 1.2% and renegotiated an extended AUD 1.7 billion of bank facilities at lower margins. These transactions have materially improved the group's weighted average credit margin from 2.6% at 31 December 2025 to 1.6% at 30 June 2026. The weighted average interest rate has reduced from 5.7% in the first half of 2025 to 5.4% in the first half of 2026. Included in this was an average base interest rate of 3.3% and an average margin of 2.1%.
At 30 June 2026, the group had AUD 3.5 billion of available liquidity. Year to date, the group has executed AUD 10.1 billion of interest rate swaps, increasing hedge coverage across all periods. The hedge coverage at June 2026 was 95% at an average base rate of 3.26%, and at December 2026 was 89% at an average base rate of 3.29%. Yesterday, the group announced the divestment of a 50% interest in Westfield Mt Gravatt for AUD 882.5 million at a capitalization rate of 5.5% and a 3.5% premium to book value. The proceeds of this transaction will initially be used to repay bank debt. The distribution reinvestment plan continues to be in effect for the August 2026 distribution and will continue to add to the group's sources of capital. The statutory result was a profit of AUD 975 million, which includes an unrealized property revaluation increase of AUD 478 million.
All properties were revalued during the half year, of which approximately 50% of the portfolio were independently valued. Overall, property valuations increased by 1.6% during the six-month period, primarily driven by growth in net operating income. The weighted average capitalization rate for the portfolio remains broadly unchanged and was 5.45% as at June 2026. Thank you, and I'll now pass you back to Elliott for closing remarks.
Thank you, Andrew. Our strategy is straightforward. We want more people to choose to come to our Westfield destinations more often and for longer. We want more businesses to choose to partner with us, and we want to make better use of the land we already own. Doing those things should continue to grow earnings and create value for our security holders. The first half of 2026 shows that strategy is working. Based on the group's operating performance in the first half and subject to no material changing conditions, we have upgraded our FFO guidance for the second half of 2026 to at least AUD 0.1206 per security, representing growth of at least 4.5%. That will take our full year 2026 earnings to be at least AUD 0.2379 per security, a growth of at least 4.25%.
We have also upgraded distribution guidance for the second half to AUD 0.09258 per security. That would take the full year distribution to AUD 0.18473 per security, also representing growth of 4.25%. We have grown earnings per security every year since 2022. We are continuing to invest in our existing business, and we have significant opportunities ahead of us across our Westfield destinations and the land around them. Our focus is to keep growing earnings and long-term value for our security holders. Thank you, and I'll now hand back to the operator to open the call for questions.
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 handset to ask your question. Your first question comes from Richard Jones with JPMorgan.
Good morning. Just wondering, Elliott , whether you've updated your thoughts on what role Scentre Group will play in the build-out of the residential opportunities, and maybe if you could touch on what we should be looking for over the next 12 months in terms of if there's any progress on specific projects.
Thanks, Richard. We are working obviously very hard at building out the pipeline of potential opportunities. You've seen that in the first six months, where we've now increased that pipeline of either approved or in the process of being approved to 25,600. We would expect that to continue to grow quite significantly, potentially even multiples of that number. Our focus is to continue doing that, and we're doing that. In terms of the build-out and roles, we are at a very early stage, pardon me, an early stage of that because we're articulating what the opportunity set is, and in parallel, working on specific opportunities like what we're doing at Warringah, or at West Lakes, or at Eastgardens, or now even at Chermside. I think in time, the delineation of who does what where will become a lot clearer.
I think what we do know is that because of its interrelationship with our existing Westfield destinations, that interdependencies of both streams of growth are critical to the success, ongoing success of those two streams of growth, particularly the destinations and what we put on the adjacent land. The specifics of who does what will come in time as we further articulate those opportunities.
Okay. Maybe just to follow on, just in terms of the CapEx program, you're obviously focusing outside Bondi on small projects. Is that what we should be thinking about going forward? I guess is something like Booragoon, is that large scale redevelopments of not on the near term agenda? Yeah, maybe I'll get you to answer that. Sorry, Elliott .
Yeah. I think that what you're seeing is a significant project at Bondi, as you rightly point out. Smaller scale, but significant projects at other centers that are occurring, Tuggerah, what we've completed at Southland and at Burwood, and continue to repurpose department store space. The opportunity at Booragoon remains a very live, active opportunity that we would look to commence in the near future. Similarly, we're seeing very similar opportunities at other centers, Albany in New Zealand, Parramatta, obviously, is a very significant opportunity. When we look at the pipeline, we do have a targeted approach to how we deploy capital.
Depending on when the opportunity for new space comes up, our focus, as we've been saying for a long period of time, is the repurposing of existing space as much as possible, because it is a much more efficient way to ensure the longevity of the demand for coming to our destinations, and a very efficient way of deploying capital to grow value and earnings for our security holders. We'll continue to do that, be it larger scale projects like Bondi, Booragoon, Parramatta or smaller scale projects like what we're seeing at Burwood, at Southland, at Mt Gravatt, and currently occurring at Tuggerah and Penrith.
Thanks, Elliott . Cheers. I'll let the others ask.
Thank you.
Your next question comes from Andrew Dodds with Jefferies.
Hey, good morning, guys. Thanks for taking my question. Just firstly, on the guidance upgrade, I was just hoping you could walk us through some of the moving parts, and I guess what's changed in some of the underlying assumptions versus back in February.
Yeah. So I'll hand over to Andrew in a moment. I think what you're seeing is that the operating performance of the business is good, and we're in a position where we feel confident for the remaining part of the year. Visitations are up 3.5%. Sales continue to grow. So we're giving people a reason to come, and when they come, they're spending money, and that's seeing a great demand for space from business partners to partner with us. Very high occupancy levels. Rents are increasing. Leasing spreads are positive. And we are in a position where we're more confident in guiding to a higher growth number than at the start of the year. Andrew.
I think, yeah, you've summarized it very well. So, yeah, look, I think the strength of the operating business is very strong and we're seeing that performance come through. We've also seen a little bit of benefit coming through the interest line as well. As you know, we did a significant amount of refinancing. The majority of that refinancing we've used for future period restructuring of interest rate swaps. But there's also a little bit of upside in the current year as well. So it's a bit of combination across the board.
Okay, great. And then just on the Mt Gravatt JV you announced last night. I was just hoping to get a bit of a sense on when you expect this to settle, and if this is also factored into the guidance upgrade this morning.
Yeah, we expect it to settle around 30 September, but it is subject to the ACCC approval. That is the scheduled date at this point in time.
All right, thanks. Just the last one is just on Bondi. Just how to think about the phasing of the income coming online. I think in the disclosures, it says progressively from the fourth quarter, but just how to think about that ramp up following completion.
The current schedule is for the Event Cinemas and Kingpin Entertainment to open by the end of this year. We will be looking to open a proportion of the food and dining in the second quarter of next year, and the final bit in the fourth quarter of 2027.
All right, great. Thank you very much.
Thank you.
Your next question comes from Tom Bodor with Jarden.
Good morning. Good morning, Elliott and Andrew. Just be interested in your Eastgardens project, so 1,300 lots you have there. Be interested in the timing around that, but also do you plan to do some work to the shopping center itself as well, or is it just a residential off to the side of the site?
Well, the timing at the moment is we have lodged an expression of interest to the HDA process. There is obviously a planning period of time that is required as part of that. It sits in a very high demand area for housing. We see that as being an excellent opportunity to create long-term value for the group. But the timing is obviously determined by the planning process and then go from there, depending on the height, bulk, and scale we eventually end up achieving. But as part of that and as part of the ongoing operations of our Westfield business, we do look to invest capital in making these destinations even more appealing, and Eastgardens is no exception to that. So we would continue to invest in Eastgardens, I would say irrespective of the housing or dwelling opportunity that also is in front of us.
Okay, thanks. Just on your development yield on costs, the range of 6%-7%. I was interested if you are thinking about pushing projects higher. I mean, obviously, you try to get the best returns possible on all projects. But with where the cost of debt is sitting, if there is an intention to push beyond that range or increase that hurdle, I suppose, as the cost of capital has gone up.
Well, I think the starting point is how do you attract more people to the destination. To do that, you need to keep investing in the assets. We are doing it at returns which are creating value at a 12%-15% total return. That is well ahead of our cost of capital. So, in that sense, financially, it is accretive. But as I said in my remarks, we deploy capital where we believe we are going to make money. We do have in our thinking what the cost of that capital is, and we take that heavily into account before we press the button on expanding dollars. And think through what that will do to the destination in order that we are not suffering a decline or a stalling in our overall earnings to security holders.
We do not want to be in a position where we are articulating a narrative where we need to invest a lot of capital into buildings, with the hope that they will stabilize over an extended period of time before earnings growth is available to security holders. I think what we have demonstrated since 2022, the emergence of COVID, that we are able to invest capital, we are able to keep our destinations the most attractive places for people to come to. We are able to grow visitations, we are able to grow earnings, and we are able to be the places that businesses want to partner with. We do that as a portfolio basis, but even destinations that are undergoing significant works. Bondi is growing sales, growing income, and growing visitations, all while going through a major development. That is the investment thesis and the way we will continue operating this business.
Thanks. Great. And one just final one from Andrew. Your receipts in terms of your cash flow, went backwards slightly based on compared to the prior period. Just be interested in any abnormal things that were impacting the cash flow in the period.
Yeah. From a rental income perspective, we've seen growth in cash flows, so growth in line with where our property revenue has grown. That cash flow has been very strong. The lumpiness is more down to the design construction business, so where we had more receipts last year than we had this year, just purely based on a timing.
Okay, great. Thanks.
Your next question comes from Ben Brayshaw with Barrenjoey.
Hi, Andrew. Just looking at your expected credit loss allowance. There has been a reduction in the first half. Could you clarify if you've released any expected credit loss in the net operating income?
Yeah. Hi, Ben. There's no expected credit loss provision release. That's effectively where we've utilized some of the provision based on debts that we've worked through with the retailers and written off.
In relation to the second half of the weighted average cost of debt, just given the margin reduction you referenced earlier, any guidance on where you expect that to come in?
Yeah, we continue to expect the full year weighted average cost of debt to be around that 5.4% mark, which is consistent with the original guidance. It's slightly better, and hence one of the reasons that we're able to upgrade guidance, however, it's within the rounding.
Great. Thanks, Andrew.
Thanks.
Your next question comes from Callum Bramah with Macquarie.
Good morning. I just wanted to start by trying to understand about capital management and where you are comfortable with on gearing. Obviously, you have recycled or sold quite a number of assets, which are broadly neutral maybe to earnings, but dilutive, I guess, to total returns based on the asset return. I wondered what the expectation is about reinvesting those proceeds.
Yeah. Hi, Callum. Andrew here. Look, I think as Elliott articulated, our focus is on recycling capital in assets whereby we are selecting 100% owned assets. We are identifying where there is an opportunity to recycle capital out of these more stabilized assets, and then to reinvest that capital into opportunities that will deliver strong yields, but probably even more importantly, stronger total returns. Those total returns we expect to be in the 12%-15% range, which is well above our cost of capital. The way to think about it is recycling capital at lower than our weighted average cost of capital and reinvesting in opportunities above the weighted average cost of capital. That is the way that we have been able to. One of the key reasons we have been able to continue to grow earnings year on year and create value. Yeah.
Callum, I would probably also add is if you go back to 2020, companies faced two choices. They either took a very long-term view of their sustainability of cash flow and ability to recycle capital, like what we do, or they took a much shorter term view and issued a significant amount of equity capital that diluted shareholders. We obviously took the former view. We are able to continue this asset recycling, and we are growing earnings all at the same time. I think that that strategy has played out better for long-term wealth preservation and creation for security holders.
Thanks. Just a couple other ones. One, I just wondered, are you able to maybe share how you think about the full year benefit into 2027 of the refinancing that you've done? Or maybe how we should think about it?
Yeah, I think, we've provided you where our margin is today. So that's a pretty good indication. Obviously, it depends on what other activity happens from a debt refinancing perspective, but that's a pretty good starting position. The other part, as you can see on our slides that we've given you a very detailed hedging chart, which gives you an idea of where our base rates would be. So those are pretty much the two key moving parts.
Maybe just one last one. Just following on the questions around the residential opportunity set. I just wondered, based on your assessment at the moment, are the projects in the money? Obviously, we've had a correction in housing, and certainly in markets like the Northern Beaches, it's been quite substantial. Is the required price based on the commerce that you've looked at at the moment sufficient, or is the market price, sorry, sufficient to cover the required price to make those projects stack up?
Well, I think the broad answer is yes, because the country is in a massive shortage of housing, required housing supply, and we see the opportunity of contributing to that supply. So the underlying thematic there must be that the market economics will sustain the ability at some point, probably when we're ready, at least, if not now, to add that supply.
Have you got those expectations earlier around cost inflation or escalations? What are you thinking over the next couple of years that you're going to see? There's obviously a lot of construction activity.
I think what we're seeing is what everyone is seeing, which is the economics of adding housing supply are moving in favor to add housing supply. Be it planning, be it government policy, be it taxation reform, be it the market itself, being a secular change towards the style of accommodation that people are looking to either acquire or even rent. That thematic, all those thematics, are tailwinds to the ability to add supply, which is obviously what we're investigating. As I did say in my remarks, we don't need to do this to grow our earnings. We're looking at this to be in addition to the growth of our Westfield business.
Thanks.
Your next question comes from Solomon Zhang with UBS.
Morning, Andrew, thanks for your time. Just looking at slide nine on your NOI margins. They seem to have slipped about a percentage point versus last year to 76%. Just wanted to check if there's any call-outs on what's driving that and whether that might unwind in the near term.
Yeah. Hi, Solomon. That obviously includes the sale of both Westfield Sydney and Westfield Chermside coming through there. Now, those assets are much larger scale assets, and what tends to happen when you have larger scale assets, the expense margin on those assets is lower than the average across the portfolio, just purely because of their scale. That's probably one of the main reasons. The second part is we have seen a little bit of property expense growth come through, in particular, driven by government-related items. Things like in Victoria, the fire service levy has come through, which is higher, and also we're seeing the network rates and charges from an electricity perspective a bit higher. The last part is probably just more of a timing issue between the first half and the second half.
Thanks. That's clear. It's good to see the margin savings come through from the refinance initiatives in the first half. Just wanted to confirm just across both the sub notes and the tenure you were seeing is that you made whole, how much in terms of an upfront fee was paid in terms of the cash flow from financing activities?
Yeah. As we highlighted at the time that we announced both the proposed buybacks and refinancing, it was on an average, it was around just under 15% upfront costs associated with that. And as we highlighted, the future cash flow savings and benefits more than offset that investment.
Great. Maybe just a final one on me, just on your post balance date spreads. Clearly, the sales, you've given a number there, 2.7% above PCP. Just wondering how your spreads are tracking year to date or in the second half year to date versus your 3.7% for first half. Cheers.
Oh, we're seeing that leasing momentum continue. Again, one of the inputs that go into our tone of not only confirming but upgrading our earnings guidance for the full year.
Thanks, Andrew.
Thank you.
Your next question comes from Howard Penny with Citi.
Howard?
Howard, your line is open.
Sorry about that. I was on mute. Firstly, congrats on results and thank you for the presentation. In the Mt Gravatt transaction, you mentioned that initially, proceeds from that transaction will be used to settle some debt. We have seen previously, buying back subordinated notes has been very accretive. There still are some subordinated notes, but those relate more to the refinanced ones. Could you just show us the opportunity of maybe more expensive debt that you could buy back or those subordinated notes? What is the opportunity initially to buying back debt in the short term?
Yeah. Hi, Howard. Andrew here. Look, I would not say that there is a specific opportunity that we are focused on in terms of buying back debt, but I think from our constantly looking at opportunities to find ways to create additional value for our security holders. If that is a more expensive debt instrument buyback that makes economic sense, then we will look to pursue that. There is nothing specific that we are pointing to at the moment. I think the other part is just as we highlighted, that we are creating more balance sheet capacity for the business to keep investing in the Westfield destinations and generate those returns that are very strong in terms of total returns of 12%-15%.
Absolutely. Thank you for that. Looking at that slide that you have on the various performances of the categories, there are some notable differences where you see department stores, discount department stores, footwear coming down. But other categories that seem to have a similar consumer, like fashion, going up. Could you just give us some insight on what you are seeing in these variable performances of the consumer in your portfolio?
Yeah. Thanks, Howard. I think what you're seeing specifically with footwear and the other categories is the other categories selling similar items. It's the delineation, which is historic in many respects. We are seeing convergence of what business partners actually sell, and therefore, potentially some of the categorizations in the specialty space should actually converge from what the consumer is actually doing. The growth of athleisure as a category, the likes of Lululemon or even now the introduction of Alo to the Australian market, they all sell footwear. I wouldn't look at that being a specific trend. Having said that, there is a lot of footwear. Having said that, despite what the category numbers are showing here, we're still expanding footwear operators because it's a contestable space.
I think the bigger question or the bigger issue that you're highlighting is our business has been growing for many, many years on the back of more dedicated brands to the categories with which people want to spend their time and effectively their money in, being those specialty or larger mini major style business partners. That has seen at the same time, the growth in specifically department stores and to a lesser extent, the other majors, be somewhat anemic. Our business has been able to grow quite efficiently on the back of that because as we know, those smaller businesses are a more economic partner to us, and their growth has seen our earnings be able to grow because of what they're doing to customer needs.
At the same time, the majors are important, but we know that they're becoming less and less important as we grow the business and giving people a reason to come and spend more time with us. I think what you're seeing is that trend play out in that narrative of what I've just said.
Thank you. Last question from me. Just regarding capital inflows. You've had some great success in these partnerships, including yesterday's announcement, and we've seen your peers also raising capital for retail assets. Do you think we're starting to peak in that investor demand for direct retail? Or do you think we still will see more transactions and more momentum from third-party capital into the asset class?
Yeah. Hi, Howard. Look, I think based on the volume of inbound inquiries and, I suppose meeting requests that potential capital partners want to meet with us and, I suppose become future partners of Scentre Group. I would say that it's not slowing down at all. If anything, the demand is growing even further.
Well, thank you very much and congrats again.
Thank you.
Your next question comes from James Druce with CLSA.
Yeah. Hi, good morning, Elliott and team. Can I just follow up on some of the questions on apartments? The message seems to be, look, we're just going to get all these approvals, then we'll figure out what to do with them. Why not just keep. You've got 25,000 odd approvals. Why not just start kicking things off today? What are you waiting for?
Well, I don't think we're waiting. I think we're working in parallel paths, but there's a lot of work to do to get to a point where you start pouring concrete or digging. I wouldn't take from what I've said that we're going to get all the approvals and then we'll figure out what we're going to do. I think it's fair to say that we are working right now on a parallel track of the execution of these approvals for the delivery because the macro thematic is, as I said, not only ripe, but it's ever increasing to be even more attractive. I think what I'm trying to articulate is that we're not at the point of being able to, on this call, specifically articulate who will do what, where, and when.
But rather to give you the confidence that we are working quite aggressively on how we get to a point of commencing these opportunities in the near future.
Okay. Just maybe a broader question. I mean, house prices are falling in a bunch of places. You've got a pretty broad portfolio with tremendous insights. How are you seeing the consumer react to house prices? The top-line sales look still pretty robust. But what are you seeing in terms of the mix and any insights that you have on the demographics would be interesting. Thanks.
Well, I think there's a couple of components to why people come. We've said this many, many times in the past, that in order to attract people to our destinations, there has to be a reason over and above the chore of buying of food or clothing oneself. We're seeing that change in our portfolio quite deliberately to create a greater reason for people to spend their time, which is what we're really competing for, in a way which is enjoyable and promotes a repeat of that same behavior as many times as possible. We play on the fact that we are in close proximity to millions of people. We do have essential things that go on in our destinations, but we have a lot of other things which are more discretionary in nature.
Coming to a Westfield destination is free, and we promote why people should come. I think what we're seeing is that there is a reallocation of what people are spending not only their time but their money on. We do all read about what's happening in house prices and the like, but what we're seeing at the moment and what we've seen in the past is that during these types of periods, our business performs very well because people do like to spend their time outside of their home. If they're doing it at our destination, they tend to spend money. Arguably, in their minds, they have more disposable income with which to use, rather than saving up for a deposit for an upcoming mortgage that may or may not be being pursued at the moment.
Okay. That's clear. One quick one, if I may. I think at the start of the year, you're guiding to like-for-like growth of around 4%. Any changes to that for the year-end? For the NOI growth.
Yeah, look, our overall growth, as we've highlighted, that we're upgrading both FFO and distribution growth. We are seeing that the underlying performance of the business is slightly better than where we originally guided. So, I would say it's similar, if not slightly better.
Okay. That's clear. Thank you.
Thank you.
Your next question comes from Simon Chan with Morgan Stanley.
Hey, guys. What's your specialty occupancy cost across the portfolio? I can't seem to find it in the preso.
It's 17.1, and I'm trying to think which page it is in our disclosures, but it is 17.1%.
Yeah, okay. It's definitely not there, Elliott . It must have slipped off. Hey, how do you guys see this ratio? Because I remember back probably five, 10 years ago, right? As soon as you get to about 18% specialty occupancy costs, that also coincided with periods of negative leasing spreads, and we all end up in tears, et cetera. Do you think that historic benchmark of about 18% is still right, or do you think that number is actually closer to 20% or closer to 16% now? How do you think about retailers' health at the moment?
Well, obviously, it comes down to the amount of sales those business partners are able to generate and their profitability. What I would say is that the correlation of the 18% to the tiers that you've articulated is probably better correlated to a great amount of new space that was being added rather than the occupancy cost being increasing. Our focus is obviously to have our business partners be as successful as possible, because we know when they are, the demand for space goes up like we're seeing. We're operating at almost full, and those conditions mean that businesses are fighting over a limited amount of new space that might become available. And will either want to keep it if they've got it, or we can bring in a new business which is more aligned to what the market is or what the customer is spending money on.
Obviously, our focus is drive number of people coming, get businesses to be able to translate that into greater profitability for themselves, and by doing so, generate even more rent, which generates even more earnings for our security holders.
Just so I am hearing you properly, you are basically saying with tighter occupancy or vacancy, you believe that a tolerable specialty occupancy cost, in theory, should be higher than those periods that I was quoting before.
I think it is absolutely right, and I think our focus on driving more people to come is generating more sales, is generating better rents. They do escalate through the mechanisms in our lease structure. We are resigning new tenants or new leases at a positive leasing spread, and we believe that that 17.1% has room to move, and we are focused on having that occur.
Cool. Mate, just my last one. I do not mean to be nitpicking an otherwise pretty good result, but the upgrades seem quite small. Then I take a look at your CPI plus
Fixed escalators of 5.5% that you achieved during the first half. Would that not have given you the avenue of a bigger FFO upgrade? Because certainly you probably would not have been forecasting 5.5% rental growth for specialties back in January.
Well, I think the wording says at least, so I am not sure how much more you wanted us to say at this juncture. But obviously we are giving a forecast of which we have a high degree of confidence of being able to achieve at least of.
Okay, very good. Thanks, Elliott .
Thank you.
Your next question comes from Adam Calvetti with Bank of America.
Hi, Elliott and team. Just on your further divestments. There's not a lot of 100% stakes left to continue divesting some of those residential schemes. I'd like to hear your commentary on whether or not you'd like to keep them as 100% ownership. Would you go to 25% stakes on some of the other properties to continue to recycle capital?
Hi Adam. Look, there is actually still quite a lot of. There's another 9 assets that we still have 100% ownership of. There's a significant amount of capital that's still sitting there. But, look, the reality is we have the opportunity to continue to joint venture over time. It's about us planning the way that we recycle capital at the right time in the asset life cycle to make sure we're recycling capital at a rate that we can then invest in better returning opportunities to grow the business over time. So the capacity to recycle more capital is significant. We don't need to go down to 25% shares. That's not really something that we've thought about at this point in time. Things like another good example, Westfield Sydney, we only sold 19.9% share of that.
That in itself is not in the 9 that I spoke about. I'm not trying to guide to another JV there, but I'm just letting you know that that's another opportunity in addition.
Okay. Are you in any conversations about it?
Sorry. What I might add is, we well flagged this as part of our long-term capital management strategy back in 2020, reiterated it all the way through, and we've executed. I think that where we're at now is that if we choose to use that lever, it will be done in an opportunistic manner.
That's clear. On those nine assets, are you in conversations with any capital partners at the moment?
We can't comment on that, I wouldn't be guiding to that either.
Okay, great. Then just on sales. It looks like you've had a weaker second quarter. What's the outlook for sales internally in the second half?
Well, when you say weaker, I think you are referring to 5.2% growth going to 4.7%, which is still a very robust growth number.
Correct.
We are not really seeing a weakness. What we are seeing is growth on growth. We are comforted by obviously the July experience, but even more importantly, our customer visitations continue to grow week on week at in excess of 3.5%. A lot more people are coming than they came last year, and we are still seeing growth on growth. We are still seeing very good demand for businesses to partner with us. The business that wants to partner with us is wanting to do so because they believe the ability to transact with a customer through a sale is obviously quite strong. We are seeing that trajectory continue.
Great. That is clear. Congratulate the result.
Thank you.
Your next question comes from Thomas Ryan with Green Street.
Morning, team. Thanks so much for the question. In terms of your overall portfolio, one of the pieces I wanted to pick up on was just around how you're skewed towards your portfolio sort of weighted cap rate at 5.4%. What you've also just mentioned in the call is your weighted average cost of debt is pretty much at the same level. How does that sit with you, notwithstanding your income growth profile? Are you looking at potentially moving around those assets based on your earlier comments? Also, just a second question from me is just back onto the occupancy costs. Notwithstanding its great conditions at the moment with 99.8% occupancy, how do you think about that and those sort of metrics leading into the fact that it is such a buoyant market at the moment and things might change?
To answer your first question, the cost of debt versus the stated cap rate in our current value accounts doesn't take into account the fact that the asset, its income grows and the debt cost remains stable. We're obviously investors for a very long term, and we manage the balance sheet in order to fund our investments, in terms of our ongoing business strategy, in order to maintain our exposure to what I would say is the best portfolio of destinations in our region. Debt cost versus cap rates is not really an equation we look at. Rather, what we focus on is how do we grow and continue to grow the cash flow, and sustainability of that cash flow through reinvestment from the destinations that we operate?
The other part to also bear in mind is that we are the manager and operator of these destinations. It's an operating business that we are, which is not necessarily captured in that cap rate calculation that you are looking at. In our compendiums that we publish on an annual basis, you'll see the differential in the amount of income we are actually generating versus the cap rate that a third-party valuer is ascribing to that particular asset. In terms of the conditions being buoyant, what I would say is that we're making this occur. We're making this occur because we're driving more people to our destinations.
We're doing that through being very focused on giving people a reason why they should come to our destinations and making sure our destinations are operated and present in a way that when they come, they have such a great time that hopefully they come back. What we haven't said is that our Net Promoter Score is running in the 60s at the moment, and we're growing customer visits. That is the lifeblood of our Westfield business because, as I said, more people coming, more businesses want to partner with us, more earnings growth for our security holders. We are absolutely focused on keeping that relationship going and making that occur. We've done that over decades. We've done that in the numerical numbers that I've described, particularly since the reemergence of the economy post-COVID, and we will continue doing so.
Thanks. Just to follow up, just in terms of the 5.5% specialty escalations, notwithstanding that's a great outcome for you guys, just in terms of the actual retail health, back onto Simon's earlier question, have you had any pushback on that from your specialties? How does that compare to your peers, and have your tenants flagged that that's of concern?
Well, the 5.5% is an outcome of our mechanism, which other than Victoria, is CPI + 2% on average. We have maintained that same mechanism throughout. We didn't change it. We're very strong on maintaining that mechanism because we believe that mechanism is in the best interest of our security holders and the long-term growth trajectory of earnings for this business. We can do that because we're 99.8% occupied. Our ability to do that when we were at 98.8% was a little bit more challenged. You saw that with the leasing spreads. Now what you're seeing is almost full or practically full, our mechanism of CPI + 2% being maintained, and re-leasing spreads positive. At the same time, all being done as sales continue to increase because we're pumping more people through to our destinations.
I've just done our value chain in reverse order, but the sense I want to give you is that we will focus on maintaining that equation because we know it grows earnings to the benefit of our security holders. That's what we'll keep doing.
Appreciate it. Thank you.
Thank you.
There are no further questions at this time. I will now hand back to Mr. Rusanow for closing remarks.
Well, thank you everyone for taking the time and listening to this call today and the questions that have been asked. We look forward to catching up with many of you in the coming days, and we wish you a great day. Bye.
That does conclude our conference for today. Thank you for participating. You may now disconnect.