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SCA Results Shows Neighbourhoods more Immune to retail downturn


SCA Property Group released their 2019 annual results today highlighting that the pain in the Shopping Centre industry is mostly being felt in the larger regional and sub regional centres with neighbourhood centres MAT growth of 3.1%, outpacing Sub Regional centres which grew by 1.5%.

Notwithstanding this, SCA is still struggling to absorb the impacts from the Vicintiy portfolio acquisition late last year. The Vicinity portfolio introduced a much higher level of specialty vacancy to the portfolio (7.3% compared to 4.7%) and lower sale growth due to competition, which was expected (and will to continue) to impact the short term performance.

SCA Property Group's portfolio now consists of 75 Neighbourhood and 10 Sub Regional Centres with 1800 specialty stores and 667,346sqm of GLA. Approximately 49% of the groups rental income is derived from Major tenancies such as Woolworths and Coles with 51% from specialties.

Sales growth from Supermarkets were up 2.7% for the year (June 2018: 1.9%) with specialty stores sales growth up 2.6% (June 2018: 3.3%). Specialty store performance was generated by Food/Liquor at 3.3% (June 2018: 2.2%) and Retail Services at 4.0% (June 2018: 5.6%). Pharmacy growth of 0.9% (June 2018: 5.3%) is softer due to increased generic prescription products and increased competition in the category.

Whilst the groups share price performed well following the announcements of the acquisition of the Vicinity Centres and subsequent capital raising, the balance of 2019 has been lackluster given the extended challenges that the malls with excessive specialty stores have bought.

Highlights

  • Funds from Operations of $141.8m, an increase of 24.1% on 2018

  • Funds from Operations per unit of 16.33c vs 15.3c in 2018, up 6.7%

  • Distributions to unitholders of 14.7cpu, up 5.8% on the prior year. This represented a payout ratio of around 90%.

  • Gearing as at 30 June 2019 was 32.8%, which is within policy range of 30-40% with a weighted average cost of debt of 3.6%, down 20bps

  • NTA at 30 June 2019 increased to $2.27 per unit, down from $2.30 per unit in 2018, primarily to the valuation declines and written off transaction costs.

  • Portfolio occupancy stabilised around 98.2%

  • SCP acquired:

  • Seven (7) neighbourhood centres and three (3) sub regional Centres from Vicinity for $573m;

  • Miami One, a neighbourhood centre for $31.9m, and

  • Stuart Mall, a sub regional centre, for $73.0m

  • SCP sold four (4) neighbourhood centres in regional locations.

  • average, specialty rents increased consistently to $726/sqm at 30 June 2019, up from $716/sqm in 2018 .

SCP has three (3) growth initiatives being, Acquisitions, Developments and Funds Management;

Acquisitions:

SCP remained disciplined with respect to acquisitions with two further acquisitions announced in 2018, Miami One and Stuart Mall.

Developments:

SCP has over $110m of development opportunities identified across 23 centres over the next 5 years, with two new Centres to be developed at Busland Beach and Shell Cove.

Funds Management:

SURF4 was expected to be launched in FY19, however this has now been put on hold until 2021 or later. The first fund is currently divesting its assets with two of the five assets exchanged and the remainder to be marketed shortly. The 2nd and 3rd Funds are performing in line with expectations. The funds management business enabled SCP to recycle non-core assets,and utilise its expertise and platform to earn management fees in the future, however the ability to attract capital into their non core assets is clearly a key challenge.

Future

SCP guidance for FY20 is

  • FY20 FFO per unit (“EPU”) guidance of 16.70 cpu (2.3% above FY19) and

  • DPU guidance of 15.10 cpu (2.7% above FY19)

SCP Trading Chart vs ASX200 AREIT Blue - SCP, Purple ASX200 AREIT Last 12 months

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