Could Scentre Group (ASX: SCG) shares actually be really cheap? The COVID-19 vaccines could be really good news for the shopping centre business.
Scentre is the business that owns all of the Westfield shopping centres in Australia and New Zealand.
Why could it be cheap?
The Scentre share price is still down 29% compared to where it was in the middle of January 2020. That’s a big decline considering real estate investment trusts (REITs) are meant to be defensive and consistent. Scentre relies of a high level of foot traffic for its shopping centres, so people avoiding those locations as well as the financial impacts (and temporary rental changes) meant Scentre has suffered heavily.
But many places in Australia are now seeing almost no community transmission. Victoria has reached 28 days of no COVID-19 cases, NSW has its own streak of around 20 days and South Australia seems to be almost on top of its outbreak.
There is also numerous COVID-19 vaccines in the works. So far we’ve heard that the Moderna, BioNTech and Oxford University vaccines are all highly effective. This could make more people comfortable to do physical shopping again.
A few weeks ago the REIT said that 92% of its retailer stores are now open and trading, portfolio occupancy is 98.4%, customer visits was at 90% (excluding Victoria).
Perhaps most importantly, October gross rent collections was 96%, before the application of any abated or deferred rent arrangements. That was an increase from 88% in September, 86% in August, 82% in July and 80% in June.
It said it plans to restart distributions.
At the current Scentre share price of $2.88 it looks cheap compared to the book value. Its market cap is around $15 billion, whilst its net assets at 30 June 2020 was around $19 billion. That means the net asset value (NAV) per unit discount is around 90%.
Not so fast..
However, there has been plenty of noise from tenants that the rents charged by landlords like Scentre are too high. One of the nosiest has been Premier Investments Limited (ASX: PMV) which owns the brands Just Jeans, Jay Jays, Smiggle and Peter Alexander.
If rents are permanently reduced then Scentre’s balance sheet value of its properties may be too high. Even before COVID-19 hit, there was a steady shift to online shopping. I’m not sure that shift to e-commerce is going to reverse. I don’t think Scentre offers much growth prospects, unless it can repurpose some of its locations.
There are other ASX dividend shares that I think have much better growth prospects, but are also benefiting from the ‘reopening theme’, such as Brickworks Limited (ASX: BKW).
