Landlord gets boost from rising Woolworths

woolworthsSCA Property Group says improved trading from Woolworths supermarkets has driven a positive first-half for the landlord, but profits are down on a smaller increase in the value of its investment properties.

SCA’s funds from operations increased by 4.9 per cent to $56.1 million for the six months ended 31 December on the back of a 2.7 per cent increase in supermarket moving-annual-turnover (MAT) and continuing MAT sales growth for specialty tenants of 3.2 per cent (pa).

Moving Annual Total growth was 0.2 per cent for discount department stores and 2.2 per cent for mini-majors within the portfolio.

The positive result is a sign that Woolworths Supermarkets, SCA’s major tenant, traded well over the holidays, but the market won’t know to what extent until the supermarket giant takes its own half-year result to the market later this month.

SCA, which specialises in supermarket-anchored sites, also said that Coles stores within its portfolio recorded record positive sales growth, while discount department stores such as BIG W had stabilised, recording positive month-on-month sales growth last December.

Non-core discretionary categories performed strongly, with food/liquor MAT growth of 3.2 per cent, retail services growth of 6.6 per cent and pharmacy growth at 6.6 per cent.

The landlord revised its guidance in light of Tuesday’s half-year result and now expects FY18 funds from operations growth of 4.1 per cent.

Average rental uplifts of 6.7 per cent were achieved on 74 renewals during the period, while average specialty occupancy costs came in at 9.9 per cent, fuelling management expectations that further rent increases are possible and desirable.

“Our relatively young centres have a lower specialty rent per square metre than more mature centres … These metrics should continue to support increases in rent/sqm over the medium term,” SCA CEO Anthony Mellowes said.

SCA also signalled its intention to remix some of its tenants as it looks to optimise its portfolio and continue to extract the impact of increased power prices from tenants.

The landlord booked a 30 per cent increase in power prices – or $1.8 million per year – in FY17, but expects that impact to be only $600,000 in FY18 by recovering approximately two-thirds of costs from tenants.

SCA had a specialty vacancy rate of 4.7 per cent of gross leasable area (GLA) at 31 December, within its target range, although centres acquired during the period had a vacancy rate of 12.6 per cent.

Total occupancy across the entire portfolio is 98.4 per cent, a figure that has remained stable since 2014.

SCA, valued its property portfolio at $2.43 billion at 31 December, up $73.1 million since June 2017 on the back of $38.3 million in acquisitions, $12.7 million in developments and $16.7 million from revaluations.

But statutory net profit after tax decreased by 66 per cent to $69.6 million compared to the prior corresponding period, which SCA said was a result of a smaller increase in the value of its investment properties.

SCA’s near $40 million in acquisitions during the half is below its historical average, but Mellowes said the approach reflects a disciplined approach to investment and that opportunities that meet its criteria continue to be assessed.

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