SCA Property Group’s most important tenant is Woolworths, so it will come as a big relief that the country’s largest retailer has shaken off the problems of the past three years and rediscovered growth in its huge supermarkets business.
Woolies accounts for 52% of SCA (Shopping Centres of Australia) gross rental income, so the retailer’s health is vital to that of the shopping centre owner.
So yesterday that improvement showed up in SCA’s 2016-17 results/ The group reported a $319.6 million full year net profit and confirmed what the last three monthly retail sales figures from the Bureau of Statistics have showing – that supermarket sales are on the improve. But not department stores.
The sharp rise in profit came from the valuation uplift from the company’s centres across the country – to $2.36 billion in the year from $1.89 billion the year before.
SCA CEO Anthony Mellowes said yesterday supermarket sales growth – which helps drive the landlord’s turnover rent – had increased 2.2% in the latest year, up from the anaemic 0.2% in the previous corresponding period.
"Our supermarket sales growth has increased as Woolworths continues to improve and our specialty tenants have again recorded healthy annual sales growth," Mr Mellowes said.
"Comparable net operating income growth of 3 per cent was pleasing and we expect to continue to generate solid comparable earnings growth as we progress through our first rent renewal cycle from FY17 through to FY20," he said.
Across 81 lease renewals, SCA said it was able to negotiate a 7% increases in rent.
But for department stores (as the ABS figures show) it was a very different story with sales at the discount department stores such as Big W (woolies) and Target (Wesfarmers) sluggish.
SCA said discount department store sales growth fell 4.3% – worse than the 3.7% slide in the previous corresponding period.
Mini Majors’ (chains, such as The Reject Shop) sales growth slowed to just 1.4% from 5.1% the previous year.
SCA said core non-discretionary store categories continued to perform strongly, with services recording 9.2% (banks, financial services, phone companies) growth, pharmacies recording 6.2% growth and food and liquor 3.7% growth.
SCA said it acquired eight more neighbourhood shopping centres in Australia for $274.9 million and acquired a 4.9% stake in Charter Hall’s Retail REIT for $83.4 million.
The group’s funds from operations – the key earnings measure for real estate trusts – hit $108.4 million, up a solid 8.3% and revenue from continuing and ordinary activities increased 13.1% to $211.4 million.
The group will pay a final distribution of 6.7c a share, unfranked, making a total of 13.1 cents for the year, up 7.4%. Distribution guidance for 2017-18 is 13.7 cents a year, a rise of just 4.4%.
SCA Property shares were steady at $2.20.
