Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) has reported its half year result to 31 December 2018, is it a buy?
SCA Property Group owns two internally managed real estate investment trusts which own & manage neighbourhood and sub-regional shopping centres located across Australia. Those shopping centres are predominately anchored by non-discretionary retailers with long term leases such as Woolworths Group Ltd (ASX: WOW), Coles Group Limited (ASX: COL) and Wesfarmers Ltd (ASX: WES) businesses.
What SCA Property Group reported
The property business said that adjusted funds from operations (AFFO), which is essentially the net cash rental return, grew by 17.5% to $60.6 million. Funds from operations (FFO) per unit grew by 7.7% to 8.1 cents.
The distribution was increased by 6.6% compared to the same period last year to 7.25 cents per unit. This represents a payout ratio of 90%.
Net tangible assets (NTA), the underlying value of each SCA Property share/unit, fell by 1.3% to $2.27 at 31 December 2018. The property business said this was primarily the result of expensing transaction costs of acquisitions completed during the period. Those acquisitions amounted to $677.9 million in total.
SCA Property Group also completed developments at Bushland Beach, Queensland which is a new Coles anchored neighbourhood centre in July 2018 and Sholl Cove, New South Wales which is a new Woolworths anchored centre in October 2018.
The real estate business also revealed that the management expense ratio (MER) improved to only 0.38%, down from 0.43% at 30 June 2018.
SCA Property CEO Anthony Mellowes said: “Our existing centres continue to perform well, delivering continuing sales growth and a comparable net operating income increase of 2.5% due to positive rent renewal uplifts and expense control.”
At the end of December 2018 debt gearing was 34.2%, compared to 31.2% six months prior, due to funding acquisitions. However, management predict the gearing will fall during 2019.
Outlook
The business aims to maintain a high level of occupancy, keep centre standards high and help specialty tenants grow sales, which should help increase rental income.
In FY19 SCA Property is predicting FFO growth of 5.9% to 16.2 cents per unit and a total distribution of 14.7 cents per unit, representing growth of 5.8%.
Is SCA Property a buy?
Management have guided a distribution yield of 5.9% for FY19 on the current share price, which isn’t bad. But, with online retail likely to take a bigger slice of the retail pie over time, it doesn’t seem as though physical retail locations would be the best place to invest for long term income.
3 ASX shares that could offer more reliable income than SCA Property
[ls_content_block id=”14945″ para=”paragraphs”]
