Scentre (ASX: SCG) has a distribution yield of around 6%, is the share price a buy?
Scentre Group owns and operates 41 Westfield shopping centres in Australia and New Zealand, with Scentre’s interest valued at $39.1 billion, many of the shopping centres are owned in partnership with property investment institutions. According to Scentre Group, more than 535 million visits were made to its centres in 2018.
Scentre’s Third Quarter Update
The domestic shopping centre business reported its third quarter operating update today.
Scentre said that it achieved total in-store sales growth of 2.4% for the three months and 1.6% for the year to 30 September 2019. Specialty in-store sales grew 2.9% for the quarter and 1.8% over the year, with major in-store sales falling 0.6% in the three months to September but grew by 1% over the year.
The average annual speciality in-store sales was $1.52 million per store, which shows how much revenue can be generated by operating in a shopping centre.
Looking at the individual segments. Over the quarter, retail services sales grew 8.2%, leisure grew 4.3% and cinemas increased 13.6%. However, in just one quarter department stores saw a sales decline of 6.1% and jewellery experienced a decline of 4.3%.
Customer visits in the quarter grew to more than 535 million. That’s a lot of regular customers!
Of the property portfolio, 99.3% of it is leased. In the nine months to 30 September 2019 there were 1,859 lease deals were completed.
Scentre CEO Peter Allen said: “We are pleased to see continued growth in customer visitation demonstrating our focus on delivering what customers want.”
Is Scentre A Buy For Income?
It has a distribution yield of 5.8%, which is fairly attractive in this era of very low interest rates. It’s trading at a bit of a discount to its net assets at June 2019, but the long term growth of online sales could cause problems.
Unless Westfield can successfully shift its locations to be truly the ‘living centres’ that it’s trying to do, I’m wary of buying it for income because its valuation could fall.
For long term dividend growth I would much rather buy the shares outlined in the free report below compared to Scentre.
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.