The Scentre Group (ASX: SCG) share price is down 1.75% in response to its full year result to December 2018.
Scentre Group owns and operates 41 Westfield shopping centres in Australia and New Zealand, with Scentre’s interest valued at $39.1 billion, many of the shopping centres are owned in partnership with property investment institutions. According to Scentre Group, more than 535 million visits were made to its centres in 2018.
What Scentre Group reported
Scenture Group reported that its funds from operations (FFO) per share, effectively the net rental return, grew by 3.9% to 25.24 cents. Total FFO was $1.34 billion.
Occupancy remained at more than 99%, which the retail landlord said had been the case for more than 20 years. Comparable net operating income increased by 2.5% mostly due to contracted rent increases.
Statutory profit for the period was $2.3 billion, which included revaluation increases of $1.1 billion across the Scentre portfolio. During the year, Scentre Group’s share of completed developments was $810 million, which management said were earnings accretive will deliver attractive long term returns.
Recognising the shift of consumer patterns, now more than a third (35%) of stores in its shopping centres offer experiences which can only be ‘consumed’ on-site such as dining, entertainment, health, fitness and beauty services. The number of customer visits increased by 5 million to 535 million.
Scentre Group Distribution and Balance Sheet
Scentre Group’s distribution was increased by 2% to 22.16 cents per security. The REIT’s share of assets under management (AUM) grew by 6.3% to $54.2 billion, gearing was 33.9% at December 2018 and the interest cover was 3.5x.
Scentre Group CEO Peter Allen said: “Our 41 Westfield living centres are an integral part of the Australian and New Zealand communities they serve, and today’s results demonstrate the strength and resilience of our business through economic cycles.”
Is Scentre a buy?
Scentre has provided guidance of FFO growth of 3%, distribution per security growth of 2% to 22.6 cents and comparable income growth of 2.5% for FY19.
If it achieves the above numbers, it’s trading with a distribution yield of 5.8%, which is quite attractive in this era of low interest rates. But, I think investors should go for solid total returns, not just income. There is a danger that online retail hurts the value of shopping centres.
The three shares in the free report below could generate much more attractive returns than Scentre Group over the next decade.
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