SCP’s enhanced valuation with NPAT Up by 129%

Shopping Centres Australasia Property Group RE Limited (SCA Property Group) which is an ASX-listed real estate company with assets primarily anchored by non-discretionary retailers present across Australia. Its traded under the code 'SCP' and holds approximately 91 AUM (assets under management) as portfolio which is valued at $3,232.8 million as of December 31, 2019.

SCP has kick started 2020 on a positive note with the shares delivering 12.64% returns since the beginning of the year. The stock which ended February 10, 2020 at $3.030 is trading nearly at its 52-week high price of $3.050.

Market Cheers 1H FY20 Results

On the date of the results announcement, 04 February 2020, SCP shares closed ~4% up on ASX. The Company delivered a healthy set of numbers, with both top line and bottom-line registering solid growth. Let’s zoom our lens to understand the Company’s financial performance.

SCP’s 1H FY20 Financial Report:

Key financial highlights of first half FY20, ending on December 31, 2019 report are as mentioned below.

• Statutory net profit after tax increased exponentially by 129.5 percent, to $90.2 million compared to the pcp ($39.3 million).
• Revenue from ordinary activities stands at $148.1 million, which is 18.4 percent above pcp.
• Funds from operations increased by 19.1 percent, to $78.5 million from $65.9 million.
• In terms of funds from operations per unit, an increase of 4.2 percent is witnessed, to 8.44 cents per unit from 8.1 cents.
• As at 31 December 2019, net tangible assets were noted at $2.29 per unit, an increase of 0.9 percent from $2.27 as at 30 June 2019. This increase primarily accounts for the valuation uplift.
• Portfolio of investment property values increased by $85.8 million since 30 June 2019. Reason pertaining to this increase is mainly because of development expenditure, acquisitions and valuation uplift.
• While considering the Company’s debt, SCP is well within debt covenant limits which is less than 50 percent gearing. Also, the interest cover ratio is greater than 2.0x, with 4.6x as at 31 December 2019.

There are two main reasons that pertains to the significant increase of 129 percent in NPAT, as mentioned below.

1. Vicinity acquisition had a full period contribution
2. The increased value of the investment properties in 2020 first half year period.

Let’s have a look at this acquisition and valuation in detail.

Vicinity acquisitions:

On 3 October 2018, SCA Property Group has announced that they have acquired ten neighbourhood and sub-regional shopping centres from ASX-listed landlord company, Vicinity Centres (ASX: VCX). The total amount of transaction was $573 million.

Property valuation:

As at 31 December 2019, the value of investment properties of the Company had increased to $3,232.8 million from $3,147.0 million (noted as on 30 June 2019). This increase in value is mainly due to the following deals.

• Warner Marketplace was acquired for $78.4 million (excluding transaction costs)
• Shell Cove Stage 3 development was completed for $4.8 million. This includes five additional specialty shops covering 396 sqm in total.
• The Company did two divestments, disposal of 5 assets in the SURF 1 retail fund and sold Cowes property. The transaction value stood at $69.3 million (1.3 percent above the June 2019 BV) and $21.5 million (9.7 percent above the June 2019 BV) respectively.
• The total portfolio weighted average capitalisation rate is currently 6.46 percent (whereas, it was 6.48 percent as at 30 June 2019). The neighbourhood centres and sub-regional centres averaged 6.36 percent and 6.74 percent.
• As mentioned above that Vicinity Centres were acquired at $573.0 million, however, the value of these acquired properties got enhanced from $576.4 million to $594.2 million (as of 31 December 2019).

The strong financials in group’s earnings relates to the Company’s core strategy, which is as follows.

• To focus on Convenience-based retail centres
• Consider retail segment, weighted to non-discretionary
• Leases for longer term for anchor tenants
• Have an appropriate capital structure
• Looking for the growth opportunities

The Company also provides its outlook and key priorities for FY 2020.

• Optimisation of the Core Business:
  • Centres which were acquired in FY 2019, SCP aims to complete the remixing project for them.
  • To look for more opportunities to generate additional income

• Growth Opportunities:
  • With successful purchases in the past, the Company will continue to discover future acquisitions which are in line with its strategy

• Earnings Guidance FY 2020:
  • FFO per unit guidance FY 2020 was increased from 16.7 cpu to 16.9 cpu earlier (which is 3.5 percent above FY19). While, guidance of DPU is consistent at 15.10 cpu (which is 2.7 percent above FY19)

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