The O’s and C’s in Property Sector: Opportunity, Collections, Consistency

Summary

  • With weak macro fundamentals and looming fears of the second wave of infection, the resilience of AU property market continues to be under the scanner.
  • Demand supply scenario needs to be closely gauged to analyse property market revitalisation in the coming months.
  • Growthpoint Properties stated that rent collection for the period April to June 2020 remained steady amid the crisis, to pay distribution of 10.0 cents for the 6-months ending 30 June 2020.
  • Scentre Group disclosed that operating performance in the initial two months of 2020 was robust; however, business framework and operating environment changed in March 2020 due to COVID-19 responses.

While COVID-19 crisis created havoc around lives, businesses, and economies; the housing market continues to show mixed signs of resilience amidst soft demand. In May 2020, millions of Aussies lost their jobs and employment tumbled by 227,700 people, while unemployment increased by 85,700 to 927,600 people, according to ABS.

While property space is subject to the growing debate on whether its recession-proof, the property prices in the country seem to be depicting some strength. According to the Australian Bureau of Statistics in March quarter 2020, property prices climbed by 1.6%. In the March quarter 2020, all capital cities recorded an upsurge in residential property prices, with Australia's two largest cities Sydney and Melbourne continuing to lead the rises.

While Australian house prices tumbled for the first time in almost a year in May 2020, capital cities’ auctions are resurrecting to former levels encouraged by the recent return to on-site auctions.

Retail landlords in Australia highlighted deep hit to the sector amidst COVID-19 pandemic and collected a bit extra than half the month’s rent from the tenants. Income levels, labour market scenario and business confidence play an important role here in defining the sustainability of landlords in the space, while the real test would punch the clock when assistance packages would be scaled back.

Charting out future growth plan in the real estate space totally depends on how long it will take to contain the virus given the housing market may not be totally immune to COVID-19 economic fallout.

With this backdrop, we will discuss two ASX-listed real estate stocks- GOZ, SCG.

Growthpoint Properties Australia (ASX:GOZ)

Melbourne headquartered ASX-listed REIT company Growthpoint Properties Australia offers spaces for people to thrive. The Company invests in superior quality industrial as well as office properties in Australia. It invests in existing properties, to ensure meeting all the requirements of the tenants now and into the upcoming period.

Tenants of GOZ range from government, retail, information technology, logistics, resources, telecommunication, and among others.

On 23 June 2020, Growthpoint provided an update on its operations and distribution for the six months ending 30 June 2020, highlighting the impact of COVID-19 pandemic on its business.

Rent collection remained robust

The COVID-19 crisis has had a profound and extensive impact on businesses as well as individuals in Australia. During this turmoil, protecting the health of its workers, tenants along with the broader community has been the priority of Growthpoint.

Additionally, the Group also placed several measures for protecting the long-term value of the business, comprising-

  • Increasing the liquidity by $100 million new debt facility and extending an existing $150 million facility, which was due to expire in the fiscal year 2022, for 4-years.
  • Implementing a Group-wide hiring freeze for at least the first half of the fiscal year 2021.

The Company has undrawn debt lines of nearly A$345 million, with ~A$53 million cash on its balance sheet.

Rent collection remained robust during this period. For the 3-months, April to June 2020, the Group received following proportion of billings to date -

Notably, the Group anticipates collections to rise for May and June, as rent relief conversations have been finalised.

Dividend Distribution Plan on Track

Growthpoint had a robust start to the financial year, and the Company was on track to achieve its FY20 funds from operations per security and distribution per security guidance, as disclosed at its results of the first half of 2020.

However, due to insecurity around the impact of the COVID-19 pandemic on the operating environment of Growthpoint and the wider Australian economy, on 26 March 2020, the Group withdrew all forward-looking announcements.

Now as the Group has greater clarity on the level of rent collections for the fiscal year 2020, the Board of Growthpoint has determined to pay a distribution for the 6-months ending 30 June 2020 of per stapled security of 10.0 cents. With this, the FY20 total distribution comes to 21.8 cents per stapled security.

The Company stated that its full-year results for FY20 would be declared on 20 August 2020.

Stock Performance: On 24 June 2020, GOZ quoted at A$3.420, up by 0.9% at AEST 02:38 PM with a market capitalisation of almost A$2.62 billion. In the last three months, stock has delivered 35.10% return.

Scentre Group (ASX:SCG)

ASX-listed real estate company Scentre Group is the owner as well as operator of Westfield in Australia and New Zealand. The retail real estate assets of Scentre Group under management are valued at A$56.0 billion. This comprises 42 Westfield Living Centres, including more than 12k outlets.

Highlights on operational front (March 2020 quarter)

The Group disclosed that its operating performance in January and February 2020 was robust. The business perspective along with operating environment altered in March 2020 due to the responses to the COVID-19.

Nearly 57% of retailers in Australia, indicating that 70% of lettable spaces are now open, and additionally some retailers plan to reopen in the forthcoming days.

Moreover, the Group notified that customer visitation increased in January and February by 1.9% on pcp. As the government restrictions were applied, visiting of customers slashed during March and April to a low of 39% of the pcp.

As now more retailers have reopened, Scentre Group has witnessed an upsurge in customer visitation in past few weeks.

Highlights from Retailer In-store Sales

Scentre Group disclosed that in-store retailer sales were also impacted due to government restrictions amid COVID-19.

Similarly, specialty in-store sales dwindled by 7.1% for the quarter to March 2020 and surged by 0.2% for the year, although comparable majors in-store sales were up by 0.7% for the quarter to March 2020 and 0.8% for the complete year.

Comparable in-store sales growth by category, total dollar sales growth-

Source:ASX Update

The Group also disclosed that work on the new Kmart store at Westfield Carindale is in process with Kmart scheduled to start in the 2H20.

Stock Performance: SCG stock traded at A$2.275, up by 0.66% (at AEST 02:38 PM) on 23=4 June 2020. In the last three months, SCG has delivered 46.49% return.


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