Source: Bloomberg
Company Description
We rate SCP as a Neutral for the following reasons:
We see the following key risks to our investment thesis:
SCA Property Group’s FY18 results were solid with Funds From Operations (FFO) of $114.3 m, up by +5.4% on the prior year and distribution of $0.139, up +6.1% on the same period last year (equates to a payout ratio of 91%). Net tangible assets (NTA) of $2.30 per unit, is up +4.5% from $2.20 last year (largely due to asset revaluations). This means that SCP’s share price is trading at a ~10.1% premium to its NTA.
We still view the share price in a trading range bound. Whilst the current low interest environment should encourage retail sales (especially specialty sales) as well as the recent pick-up in supermarket sales growth, at current valuations, a discount would be required given that:
1. An overleverage domestic consumer base with minimal to no wage growth;
2. Potential rate hikes to come affect bond-proxy stocks and their yield and debt books;
3. Greater online shopping trend with entrance of Amazon to Australian market; and
4. New entrants in supermarket industry such as Aldi and Costco which may ultimately take away market share from Woolworths and Coles and hence adversely impact rental growth.
1. For FY18, “comparable NOI growth of 2.8% [despite] increased electricity costs…[and] We continue to expect solid comparable earnings growth as we progress through our first specialty rent renewal cycle through to FY20”.
2. Guided “for FY19 FFO is 15.6 cpu (2.0% above FY18 actual), and our guidance for FY19 Distributions is 14.3 cpu (2.9% above FY18 actual). The FFO guidance includes the acquisition of Sturt Mall in August 2018 and the launch of SURF 4 in late FY19 but does not include any further acquisitions or divestments”.
1. The portfolio has a weighted average cap rate of 6.33%.
2. Occupancy rate is 98.4% and has remained relatively stable since December 2014 at between 98.4% and 98.8%. Specialty vacancy rate of 4.8% of GLA was in line with management’s target range of 3% to 5% and our expectations.
3. In our view, SCP’s portfolio has relatively young centres with lower specialty rent per square metre than more mature centres (owned by other listed REITs) and SCP’s average specialty occupancy cost at 9.8% appears sustainable (relative to other REITs at ~15-20%).
4. Developments which were completed include Kwinana WA (Coles third anchor) and Mount Gambier SA (Bunnings replacing Masters). Development at Bushland Beach QLD (new Coles anchored neighbourhood centre) completed in July 2018 and Shell Cove NSW (new Woolworths anchored neighbourhood centre) expected to complete in 1H FY19.
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Figure 1: SCP’s Property Portfolio Summary
Figure 2: SCP FY18 Results summary – Profit and Loss
We arrive at our $2.30 valuation based on a blend of asset-based valuation and DCF methodology. Our asset-based valuation arrives at a $2.39 per share (using a conservative average cap rate of 8.0%). Our DCF valuation arrives at a $2.16 per share valuation (using a conservative WACC of 8.2% and long-term growth rate of 2.5%).
Figure 3: SCP Financial Summary
SCA Property Group (SCP) owns a diversified shopping centres portfolio located throughout Australia. The portfolio consists of 77 centres independently valued at $2,511.7 million. SCA Property Group predominantly focuses on convenience retailing through its ownership and management of a quality portfolio of neighborhood and sub-regional shopping centres and freestanding retail assets. ~53% of gross rents are derived from Woolworths (~39%) and Wesfarmers (~14%).
1st March 2020
1st October 2019
25th September 2019
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