12 Feb 2019

SCA Property to upgrade new retail assets to propel growth

Shopping Centres Australasia Property will focus on upgrading and integrating the $678 million portfolio of assets acquired in the first half to propel it to a 6 per cent increase in finds from operations for the full year.

SCA Property had a spending spree in late 2018, buying 10 convenience-based shopping centres from Vicinity Centres and two Coles-anchored centres in Wagga Wagga, regional NSW, and one on the Gold Coast, Queensland.

They are food-based centres, a sector of the property market which is proving to be more resilient to the uncertain consumer outlook than the volatile apparel retail tenants.

Overall, the supermarket tenants of Coles and Woolworths, saw a rise in comparable sales of 1.7 per cent as the price discounting war diminished, while discount department stores such as Big W, saw increased sales of 1.9 per cent from a restructure in the businesses.

Due to acquisitions costs, the overall net profit was down 43.5 per cent to $39.3 million for the six months ending December, 31, 2018,  but funds from operations, being the more accurate measure for real estate investment trusts, was up 16.5 per cent to $65.9 million, compared to the same time in 2018.

The interim distribution was 7.25¢, up by 6.6 per cent on the same period last year, and was paid on January 29.

SCA Property chief executive Anthony Mellowes said the group's unlisted SURF 4 funds, which was scheduled to launch in the coming months, has been ''scrapped for this year''.

''SURF 4 will be delayed due to current market conditions, and will not complete in the 2019 financial year. We will continue to monitor the market appetite for new product in 2020,'' Mr Mellowes said.

He also confirmed SCA Property will sell its holding in Charter Hall Retail REIT in coming months.

Of the recently acquired centres, he said they were performing ''in line with our expectations at the time of acquisition, there has been negative sales growth and negative renewal spreads''.

''Six of the 12 acquired centres are being impacted by competition from within their catchments and we expects sales growth for these centres to turn positive once the immediate competition impacts cycle through and our remixing strategy has been implemented,'' Mr Mellowes told investors at a briefing.

''SCA Property will rebase some specialty rents to more sustainable levels, which could result in negative rent renewals over the next two years, before returning to growth.''

He assured the market, ''there is rental guarantee to cover any short-term earnings volatility''.

Mr Mellowes said: "We continue to make progress in relation to a number of other potential development opportunities. In total, we have identified 26 centres in our portfolio with development potential amounting to $120 million of investment over the next five years."

Property analysts said the results were in line with market expectations, but they said the new acquisitions, ''require more work''.

''Solid result and confirms why it needs to trade at a defensive premium,'' CLSA's Michael Vincent said. "The poor-performing Vicinity centres will provide an upside when Mr Mellowes and his team turn them around, which he has a track record of doing.''

The group has maintained full-year 2019 guidance for FFO of 16.2¢, a 5.9 per cent growth on 2018 and distribution per security of 14.7¢, a 5.9 per cent growth on 2018.

Guidance includes the acquisitions completed in the first half of 2019 financial and does not assume any further acquisitions or divestments.

SOURCE ; https://www.smh.com.au/business/companies/sca-property-to-upgrade-new-retail-assets-to-propel-growth-20190205-p50vpz.html

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