Shopping Centres Australasia forecasts solid growth

Shopping Centres Australasia has offset the softer sales growth from the ongoing supermarket wars with a rise in specialty store turnover to report a 29.1 per cent rise in first half funds from operations to $48.8 million.

The Woolworths property offspring, SCA, is now the largest owner of neighbourhood centres in Australia with 81 across the country. Aside from the supermarkets it has four Dick Smith leases and one Masters and had added Aldi to its mix at Mt Gambia, South Australia.

Greenbank Shopping Centre, south of Brisbane, bought by SCA for $23 million.
Greenbank Shopping Centre, south of Brisbane, bought by SCA for $23 million. Photo: David Millar

The group sees its main growth in remixing the malls when rent renewals start in 2017, new unlisted funds and acquisitions and improving sales from specialty stores.

The statutory net profit declined 7.5 per cent to $98 million due to one-off smaller increases in values for investment properties and market to market derivatives. Interim dividend was 6¢, up from 5.6¢ in the previous corresponding year.

Due to about $135 million of new acquisitions, including Greenbank, Brisbane, in January and a $100 million development pipeline the group increased its guidance for the full 2016 year funds from operation per unit to 13.6¢ (6.2 per cent above 2015), and maintained a full year 2016 guidance for distributions of 12.2¢ (7 per cent above 2015). 

SCA's chief executive, Anthony Mellowes​, warned that the battle between his largest tenants, Woolworths and Coles supermarkets, would see subdued sales growth "in the foreseeable future".

"The real reason for that is related to price competition not only with each other but with Aldi​," Mr Mellowes said.

"So we expect, as I said, subdued, let's say flat, to slightly positive sales growth ... and maybe from time to time, Woolworths or Coles might report a negative sales number."

Mr Mellowes said it was a case of price deflation amongst themselves, even with the increased presence of Aldi.

"But in terms of achieving strong increases in turnover rental growth, I think that is looking like a more distant possibility," he added.

The results were in line with market expectations given the ongoing war between the major supermarkets.

UBS said supermarket sales are slowing as expected, but earnings will remain resilient near to medium term from acquisitions and specialty store rental growth.

As with other landlords, Mr Mellowes said SCA was closely monitoring the potential sale or closure of the Dick Smith and Masters stores in its portfolio.

"We have four stores leased to Dick Smith paying gross annual rental of $1 million, and we have one site leased to Masters paying gross annual rental of $1.7 million. At present, Masters has paid rent up to February 29, 2016, and Dick Smith has paid rent up to January 31, 2016," Mr Mellowes said.

"We have not been contacted by either of these parties to notify us of their intentions in relation to the stores they lease in our portfolio or how they propose to deal with their obligations under these leases."

Overall revenue rose 15.6 per cent to $99.2 million boosted by the 5.6 per cent rise in sales from specialty stores and 5.2 per cent from the New Zealand supermarkets, while Australian supermarkets rose 1.3 per cent. This helped to offset the 3.4 per cent drop in discount department stores.