Malls – back online
FY22 RESULT
Need To Know
- Strong result ahead of guidance.
- First FY23 dividend guidance implies a small upgrade for markets dividend forecasts.
- Leasing spreads continue to fall, whilst low occupancy costs suggest medium-term upside to rents not factored into market forecasts
- Cap rates +4bps in AUS. NTA is down 4% to $A2.55, which implies share price trades at a 20% discount to NTA.
Strong result with SCG delivering its second earnings beat for FY22. Better than expected rent growth, leasing outcomes driving the beat. The first guidance for FY23 implies a 4% upgrade to market estimates.
Portfolio metrics continue to improve. Leasing spreads -3.3% vs -3.6% 1H22, occupancy rates up 98.9% vs 98.7% 1H22, average specialty rents lifted +6.8% in the half, whilst occupancy costs now ~16% vs >18% pre-covid. In our view, this presents a clear upsize opportunity for SCG via higher rents which is currently not captured in market estimates
Balance sheet: Gearing static in the half at 27.3%, with interest hedged at 85%. NTA down 4% in 2022, driven by higher cap rates in AU and NZ. SCG remains focused on maintaining and developing assets.
Outlook: FFO to be in the range of 20.75 to 21.25 cents per security for 2023, representing 3.4% to 5.9% growth for the year. Market at 19.7cps. – Distributions to be at least 16.50 cents per security for 2023, representing at least 4.8% growth for the year. Market at 15.9cps
Investment View
A strong result that should be well received by the market. Improving portfolio dynamics suggests the worst fears of COVID-19 and online leakage are not backed up by activity levels in the Westfield Centres.
Share price still factors in a 20% discount to NTA, which arguably look too high given the improving performance of the centres. Whilst a slowing of consumer activity remains a risk for 2HCY23, this risk is likely lower than structural shifts underway in office and cyclical risks which are more pronounced in residential-focused REITs. A dividend yield of 5.5% holds appeal, with low single-digit earnings and mid-single-digit dividend upgrades by the market expected post these results.
For now, we retain a HOLD rating.
Stock Overview
Share Price
Company Overview
Scentre Group owns and operates the preeminent portfolio of living centres in Australia and New Zealand.
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