Company Reports

Region Group (formerly Shopping Centres Australasia Property Group) owns and manages a portfolio of near 100 smaller shopping centers in Australia. Gross rental income is about evenly sourced from anchor tenants such as supermarkets and smaller specialty tenants. The REIT was created in 2012 when Woolworths sold a portfolio of its centers and leased back the supermarket sites within them. Region Group has since bought and sold various assets (including divesting its New Zealand portfolio). Woolworths remains its largest tenant, providing about a third of gross rent. Coles is about 10% and other tenants include Big W, Wesfarmers, and Aldi. Three fourths of assets (by value) are classified neighborhood and the other fourth is subregional, and most centers are in suburban or regional areas. The portfolio is relatively young, meaning just under a half of anchor tenants have hit thresholds where turnover rent becomes payable.

Region Group’s fiscal half-year result revealed distributions and adjusted funds from operations, or AFFO, of AUD 6.7 cents per security. Our full-year AFFO estimate of AUD 13.7 cps remains unchanged and is in line with management guidance. AFFO is slightly below the halfway point for the full-year estimate, but second-half leasing requirements are mainly renewals, which tend to have lower capital expenditure.

The federal government’s migration review was released on Dec. 11 and it suggests high population growth remains the status quo. The review tinkers with various visa rules, but contains no major reduction in migrant numbers, suggesting high migration will persist, relative to precoronavirus levels and versus other developed countries.

Region Group (formerly Shopping Centres Australasia Property Group) owns and manages a portfolio of near 100 smaller shopping centres in Australia. Gross rental income is about evenly sourced from anchor tenants such as supermarkets and smaller specialty tenants. The REIT was created in 2012 when Woolworths sold a portfolio of its centres and leased back the supermarket sites within them. Region Group has since bought and sold various assets (including divesting its New Zealand portfolio). Woolworths remains its largest tenant, providing about a third of gross rent. Coles is about 10% and other tenants include Big W, Wesfarmers, and Aldi. Three fourths of assets (by value) are classified neighbourhood and the other fourth is subregional, and most centres are in suburban or regional areas. The portfolio is relatively young, meaning just under a half of anchor tenants have hit thresholds where turnover rent becomes payable.

No-moat Region Group’s result was in line with our expectations, and management guidance. Funds from operations fell 2.6% to AUD 16.9 cents per security, Adjusted FFO, or AFFO, and distributions, were flat at AUD 15.3 and AUD 15.2 cps, respectively.

Region Group (formerly Shopping Centres Australasia Property Group) owns and manages a portfolio of near 100 smaller shopping centres in Australia. Gross rental income is about evenly sourced from anchor tenants such as supermarkets and smaller specialty tenants. The REIT was created in 2012 when Woolworths sold a portfolio of its centres and leased back the supermarket sites within them. Region Group has since bought and sold various assets (including divesting its New Zealand portfolio). Woolworths remains its largest tenant, providing about a third of gross rent. Coles is about 10% and other tenants include Big W, Wesfarmers, and Aldi. Three fourths of assets (by value) are classified neighbourhood and the other fourth is subregional, and most centres are in suburban or regional areas. The portfolio is relatively young, meaning just under a half of anchor tenants have hit thresholds where turnover rent becomes payable.

We maintain our AUD 2.55 fair value estimate for no-moat Shopping Centres Australasia following the release of full-year results. Fiscal 2022 revenue of AUD 350 million was as expected. Although the first half was affected by pandemic-related restrictions reducing foot traffic and nondiscretionary shopping, the second half showed a strong recovery. In the second half, rent collections were greater than 100% of billings as the REIT recovered COVID-period debts, while new rent reductions and nonrecoverable rent were negligible.

Shopping Centres Australasia, or SCA, delivered a strong first-half result, and we increase our fair value estimate by 9% to AUD 2.55 per unit. The main driver of our increased valuation is the remarkable defensiveness of SCA’s convenience assets, proven by their performance through lockdowns. We think SCA can, and will, run higher gearing toward the midpoint of its target range of 30%-40% net debt/assets, holding more assets in its portfolio and thereby generating a higher earnings yield over time.

We maintain our AUD 2.35 fair value estimate for no-moat Shopping Centres Australasia, or SCA, following the release of full-year results. Full-year revenue of AUD 294 million was aligned with our expectations. Minimal pandemic-related lockdowns in the June half lead to a normalisation of trading, with a bounceback in specialty retail and cash rental collections. We have slightly increased our fiscal 2022 full-year revenue estimate by 5% to AUD 344 million. Our revised estimate predominantly relates to SCA’s acquisition of seven shopping centres throughout fiscal 2021 and two in the early weeks of fiscal 2022. SCA currently trades at an 11% premium to our fair value.

Shopping Centres Australasia Property Group (SCA) owns and manages a portfolio of circa 85 smaller shopping centres in Australia. Gross rental income is about evenly sourced from anchor tenants such as supermarkets, and smaller specialty tenants. The REIT was created in 2012 when Woolworths sold a portfolio of its centres and leased back the supermarket sites within them. SCA has since bought and sold various assets (including divesting its New Zealand portfolio). Woolworths remains its largest tenant, providing about a third of gross rent. Coles is about 10% and other tenants include Big W, Wesfarmers, and Aldi. Three quarters of SCA’s assets (by value) are classified neighbourhood and the other quarter is subregional, and most centres are in suburban or regional areas. The portfolio is relatively young, meaning only about a third of anchor tenants have hit thresholds where turnover rent becomes payable.

Shopping Centres Australasia Property Group (SCA) owns and manages a portfolio of circa 85 smaller shopping centres in Australia. Gross rental income is evenly sourced from anchor tenants such as supermarkets, and smaller specialty tenants. The REIT was created in 2012 when Woolworths sold a portfolio of its centres and leased back the supermarket sites within them. SCA has since bought and sold various assets (including divesting its New Zealand portfolio). Woolworths remains its largest tenant, providing about a third of gross rent. Coles is about 10% and other tenants include Big W, Wesfarmers, and Aldi. Three quarters of SCA’s assets (by value) are classified neighbourhood and the other quarter is subregional, and most centres are in suburban or regional areas. The portfolio is relatively young, meaning only about a third of anchor tenants have hit thresholds where turnover rent becomes payable.

No-moat Shopping Centres Australasia’s half-year results were largely in line with our expectations, but the group has slightly increased full-year earnings guidance. In line with this, we are increasing our full-year expectations for funds from operations, to 16.9 cents per unit, from the 16.7 cents guidance provided in August 2019. However, we make no change to our fair value estimate of AUD 2.36 and continue to view the shares as modestly overvalued.

The annual general meeting for no-moat Shopping Centres Australasia Property Group, or SCA, reaffirmed guidance for fiscal 2020 that was provided in August 2019. The group expects funds from operations, or FFO, of AUD 16.7 cents per unit, and distributions of AUD 15.1 cents per unit, and our forecasts are in keeping with this.

We raise our fair value estimate to AUD 2.36 per unit for no-moat Shopping Centres Australasia Property Group following fiscal 2019 results. Earnings were in line with our expectations: Funds from operations were up 6.7% per unit before nonrecurring events such as acquisitions and other adjustments. This was a solid annual result, but the structural headwinds facing retail assets means our forecasts for the company are mostly unchanged. The main driver of the slight increase in our fair value estimate is due to time value of money.

We make no changes to our AUD 2.30 fair value estimate for Shopping Centres Australia Property Group, or SCA Property Group, following the transition to a new analyst. With a portfolio largely skewed toward smaller neighbourhood centres, which have low barriers to entry, we retain our no-moat rating for the firm. Our medium fair value uncertainty, and standard stewardship ratings also remain intact. Last trading at AUD 2.62, the company trades at a 13% premium to our intrinsic assessment.

Shopping Centres Australia Property Group, or SCA Property, delivered first-half 2019 earnings on a funds from operations, or FFO, basis of AUD 8.1 cents per unit up 7.7%. This puts it firmly on track to deliver a small beat to reiterated fiscal 2019 guidance of AUD 16.2 cents per unit, or cpu, and distribution guidance of AUD 14.7 cpu. We’ve made minor compositional revisions to our forecasts and no-moat-rated SCA Property screens as slightly overvalued, currently trading at AUD 2.48 versus our unchanged fair value estimate of AUD 2.30.

In order to fund the upcoming purchase of 10 shopping centres, Shopping Centres Australasia Property Group, or SCA Property, has undertaken a AUD 262 million institutional placement at AUD 2.32 per unit and is also undertaking a unit purchase plan, or UPP, raising up to a further AUD 50 million. Existing unitholders can subscribe for up to AUD 15,000 of additional new units with no brokerage or transaction costs. The price for each new SCA Property unit will be the lower of the institutional placement price of AUD 2.32 and a 2% discount to the 5-day weighted average price prior to the closing date, being Nov. 16, 2018, with a minimum price of AUD 2.25. SCA Property noted if the unit price lags the minimum price, the UPP may not proceed. Further details on the UPP will be contained in the offer booklet, to be released on Oct. 22, 2018.

Shopping Centres Australasia Property Group, or SCA Property, is acquiring 10 shopping malls from Vicinity Centres for AUD 573 million. The malls are 98% occupied and generate a yield of 7.24%, but the yield will be temporarily propped up to approximately 7.47% as the vendor is providing a two-year rental guarantee, capped at AUD 8 million. SCA Property has guided for the annualised pro forma uplift to fiscal 2019 funds from operations, or FFO, to exceed 5% from the transaction. Accordingly, FFO guidance for fiscal 2019 increases to AUD 16.2 cents per security, or cps, from AUD 15.6 cps. Distribution guidance is also increased to AUD 14.7 cps from AUD 14.3 cps.

Shopping Centres Australia Property Group, or SCA Property, delivered a clean fiscal 2018 result, with earnings on a funds from operations, or FFO, basis in line with expectations, up 4.1% to AUD 15.24 cents per security, or cps. Sales and rental outcomes for the speciality tenants were above expectations at 3.3% and 2.3%, respectively. An improved outlook for specialty retail rents is the primary reason behind the small upgrade in our fair value estimate to AUD 2.30 from AUD 2.22. At current levels, no-moat-rated SCA Property screens as broadly fairly valued, with the guided fiscal 2019 distribution of AUD 14.3 cps implying a yield of 5.9%. Guidance is for fiscal 2019 FFO of AUD 15.6 cps, but our forecasts are marginally higher at AUD 15.7 cps on better than expected outcomes in specialty leasing and borrowing costs.

SCA Property Group doesn’t provide quarterly sales results, but it's possible to glean how its tenants are likely to be performing from peers. In this regard, sales data from landlord peers and the supermarket giants for the quarter-ending March 2018 reveals bricks-and-mortar categories are growing sales at a modest rate. Apparel and jewellery sales are weak across the board, which is not a major issue for SCA Property as it has very few fashion tenants. The only strongly performing category of late is specialty retail services, a category that encompasses optometry, medical and cosmetic services, shoe and watch repairs, and beauty services. This is a positive for SCA Property, as it has a strong representation in this area, with specialty services tenants contributing 22% of specialty rent and 10% of total mall rent.