Security price: $3.89
Industry: Retail
Forecast distribution: 20.9 cents per security
You may not have heard of Scentre Group, but you’ve almost certainly heard of, and shopped in, Westfield malls.
Billionaire Frank Lowy split his Westfield Group last year. One business, Westfield Corporation, houses US assets.
The other business, Scentre, manages, develops and owns interests in the Westfield shopping centres in Australia and New Zealand.
We recently looked at Westfield Group as a good option for income-focussed investors.
We also think Scentre is a good opportunity for investors seeking income streams. The REIT has a strong portfolio of shopping centres with scale and premium locations, as well as a solid dividend yield.
Scentre was formed in June last year during Lowy’s Westfield restructure with the combination of the Westfield Retail Trust and Westfield Group’s Australian and New Zealand management business. Since listing the securities have performed well.
Scentre has 47 shopping centres in Australia and New Zealand, including Hornsby in Sydney and Chermside in Brisbane, with 12,699 retail outlets. Reports have suggested the group is looking to offload some of its shopping centres.
Scentre’s malls hold market-leading positions in premium locations. The portfolio includes 14 of Australia’s top 20 performing centres and is 99.5 per cent leased.
It benefits from economies of scale and the huge foot traffic gained from having retail outlets all in one place.
Scentre does have some challenges including a soft retail environment and the competitive threat of online retailing, which could put downward pressure on rental growth.
But when it handed down its first-quarter results in May, management reported improving retail sales. Sales at specialty stores (stores that sell one category such as fashion, footwear and jewellery) rose 5.8 per cent in the first quarter in Australia, and were up 4 per cent for the year.
Scentre is introducing digital innovations including Wi-Fi networks at 26 centres, and an in-house advertising network of custom-designed smart screens.
The company also continues to roll out new developments, with $505 million worth of development starts in 2015, including projects at Hurstville, Kotara and Casey Central.
Scentre reports its interim results for the six months to June 30 on August 25. The company has forecast Funds from Operations (FFO) – a measure of the amount of cash generated — to grow by 3.5 per cent to 22.5 cents per security. We don’t expect any surprises.
It is forecast to pay a distribution of 10.45 cents per security for the half. The full-year pay out is forecast to be 20.9 cents per security, giving a solid dividend yield of 5.4 per cent.
At $3.89, Scentre is trading broadly in line with our forecast value of $3.74. Scentre does face some challenges, but Westfield remains a powerful brand and strong operator of shopping malls, which along with a solid dividend yield, makes it a good option for income investors.