ASX code: SCP
Security Price: $2.17
Industry: Real Estate
Forecast Distribution: $0.137 per security
One doesn’t have to look far to find reasons for pessimism when scouring the retail environment currently. Household bills are on the rise, the average consumer is under pressure and the Amazon juggernaut is on its way to our shores.
Such an environment has left many nervous about the prospects of those leveraged to discretionary expenditure. As a result, the relative appeal of non-discretionary retail exposure looks to be shining brighter. One such exposure is that of SCA Property Group (ASX: SCP), a REIT with assets predominately anchored by leading non-discretionary retailers Woolworths (ASX: WOW) and Coles.
The Dividend Detective recalls covering the spin-off of SCP from WOW nearly five years ago. The trust listed at $1.43 per unit and has been a dependable performer since, growing its annualised income stream and per unit asset backing considerably.
SCP delivered a typically solid full year result last week, with funds from operations (FFO) up eight per cent to $108.4m. Reported profit was significantly higher at $319.6m, reflecting the substantial asset revaluation gains booked during the period.
As a result, per unit net tangible asset (NTA) backing increased by nearly 15 per cent to $2.20. Guidance for FY2018 also appeared to be solid, with management expecting to deliver FFO and distribution per unit of 15.1c and 13.7c, respectively. This suggests SCP will deliver modest growth of about three per cent in earnings while concurrently offering a yield of 6.3 per cent.
Importantly, key portfolio metrics look sound. Occupancy is high at 98.4 per cent while the weighted average lease expiry (WALE) of 9.8 years is amongst the most attractive in the property sector. Gearing at 31.8 per cent looks comfortable and affords management some scope to grow the vehicle further in coming years.
With WOW and Wesfarmers (ASX: WES) accounting for greater than 50 per cent of gross rent, we perceive the tenancy risk to be relatively low.
One further long-term growth opportunity for SCP exists in funds management, which will increasingly see the group become an external manager of retail focused property syndicates. This will allow SCP to recycle assets deemed non-core while utilising its existing expertise to generate further revenue streams.
With a geographically well diversified portfolio, strong tenant base and long dated lease expiry profile, we believe SCP presents well for relatively risk averse, income focused investors.
Adrian Ezquerro is a senior analyst for the Clime Australian Income Fund www.clime.com.au/caif
ASX code: SCP