Profits soar for suburban retail property owners SCA, Charter Hall

Profits soar for suburban retail property owners SCA, Charter Hall

Photo: Charter Hall Retail REIT's Southgate Centre in Morphett Vale, SA.

Two ASX-listed property groups with heavy weightings towards suburban shopping centres have recorded triple-digit profit growth in FY21, racking up more than $750 million combined as higher occupancy and retail sales lifted property values and operating cash flow.

SCA Property Group's (ASX: SCP) net profit after tax (NPAT) soared by 441.4 per cent to hit $462.9 million, while profit shot up by 558 per cent at Charter Hall Retail REIT (ASX: CQR) to reach $291.2 million.

Improved property valuations did most of the heavy lifting, but both groups still recorded double-digit net operating cashflow, up 12.9 per cent for SCA and 16.3 per cent for Charter Hall.

SCA's chief executive officer Anthony Mellowes says the company's convenience-based centres have benefited from the shift to shopping locally over the past 12 months.

"Our anchor tenants have experienced strong sales growth and turnover rent has increased. Specialty tenant sales recovered quickly following the easing of restrictions and leasing spreads were positive in the second half of the financial year," Mellowes says.

The company's chief financial officer Mark Fleming notes the result is despite the negative impacts of COVID-19 on results.

"During the financial year we provided $10.5 million in rental assistance to over 800 tenants (comprising rent waivers of $6.9 million and rent deferrals of $3.6 million), however rent collection rates returned to pre-pandemic levels by the end of the period," he says.

SCA Property Group's like-for-like valuations increased by $409.4 million, alongside acquisitions worth $452.4 million.

Like SCA, Charter Hall Retail REIT's portfolio is strategically weighted towards high quality major convenience retail tenants, with Coles (ASX: COL), Woolworths (ASX: WOW), bp, Wesfarmers (ASX: WES) and Aldi representing more than half of rental income.

"FY21 has seen a strong demonstration of the resilience of the CQR portfolio. In FY21 we've seen net operating earnings grow, portfolio occupancy improved, positive leasing spreads, valuation gains and NTA growth," says Charter Hall's retail CEO Greg Chubb.

"Where COVID-19 mandated closures and restrictions have occurred, we've seen tenants trading rebound quickly in the period that follows.

"Our strategy of partnering with the leading convenience retailers gives CQR a highly defensive and resilient income stream, with 53.5 per cent of portfolio income coming from these major retailers. The portfolio remains in a strong position to continue delivering resilient and sustainable income growth in the future."

Charter Hall Retail provided $6.7 million - or 2.3 per cent of rent - in COVID-19 tenant support during the year, compared to $10.7 million in tenant support during the three months of April through June of 2020.

Of the REIT's rental support, $5.4 million was through rent-free incentives and $1.3 million was in the form of rent deferrals. The group reports $2.7 million of COVID-19 deferred rent, or 60 per cent, was paid by the end of the financial year.

Charter Hall also reports a quick and strong rebound in specialty sales and customer traffic after recent lockdowns in South Australia, regional Victoria and Southeast Queensland. However, as of today there are 428 specialty store tenants that are not trading due to COVID lockdowns and restrictions in multiple jurisdictions.

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