New valuations lift SCA Property profits 130%

New valuations lift SCA Property profits 130%

SCA Property Group (ASX: SCP) is starting to reap the benefits of forking out $573 million on 10 shopping centres in 2018, as strength in non-discretionary retail drives its portfolio value higher.

The Sydney-based REIT also known as Shopping Centres Australiasia reports a 129.5 per cent year-on-year jump in net profit after tax (NPAT) to $90.2 million for the first half of FY20, mostly thanks to an increase in property valuations.

The result represents a notable rebound from the 37.4 per cent profit downturn Shopping Centres Australia recorded in FY19.

The group's investment portfolio is now worth more than $3.2 billion, up $85.8 since 30 June 2019 due to acquisitions, development expenditure and a like-for-like valuation uplift.

CEO Anthony Mellowes says anchor tenants including Woolworths (ASX: WOW) and Coles (ASX: COL) continue to perform well, with supermarket and discount department store moving annual totals (MAT) continuing to improve and turnover rent also on the rise.

"Our specialty tenants are displaying resilience with specialty sales growth improving, sales productivity increasing, specialty vacancy reducing and occupancy cost now at 9.8 per cent," says Mellowes.

"Against a backdrop of a softening in the broader retail market, our strategy has continued to be a bias toward non-discretionary categories, maintaining high retention rates on renewals, and reducing specialty vacancy by focusing on difficult long term vacancies.

"This strategy will ensure that we have sustainable tenants paying sustainable rents, and ultimately will support our strategy of generating defensive, resilient cash flows to support secure and growing long term distributions to our unitholders."

He notes average leasing spreads were negative and average incentives were higher in the last six months, but a a sustainable improvement in occupancy and tenancy mix has been achieved across the portfolio.

The company also made a significant acquisition in Brisbane in the half while a development of Shell Cove south of Wollongong was also completed.

"We continue to take advantage of investment opportunities that meet our investment criteria and have completed the acquisition of Warner Marketplace in Brisbane for $78.4 million and the Shell Cove Stage 3 development for $4.8 million," says chief financial officer Mark Fleming.

"We have recycled capital from lower growth assets by selling Cowes for $21.5 million (or 9.7% above June 2019 book value) and we also completed the divestment of all five properties in the SURF 1 retail fund at a 1.3 per cent premium to the June 2019 book value and aim to wind up this fund and return capital to unitholders during calendar year 2020.

"In relation to the properties acquired from Vicinity in 2018, we are well advanced in our remixing project which we expect to be substantially completed by June 2020."

SCP shares were up 2.1 per cent at $2.92 at 10:55 AEDT.

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