Supermarkets have benefited from consumers flooding small suburban shopping centres during the pandemic, but the rising tide did not lift all boats.
Results released today by Shopping Centres Australasia Property Group (ASX: SCP) show even a 5.1 per cent sales increase for anchor supermarket tenants in its community malls was not enough to offset the difficulties faced by specialty retailers.
SCA is reporting a 22 per cent year-on-year drop in net profit after tax (NPAT) to $85.5 million, even though on most metrics its performance was strong; high portfolio occupancy, increased leasing activity, lower vacancies, more renewals and even a profit on the sale of a Victorian property.
Chief executive officer Anthony Mellowes says the company's convenience-based centres have been relatively resilient and have even received increased turnover rent from anchor tenants.
Approximately 92 per cent of tenants are now open and trading, including approximately 63 per cent in Victoria.
While SCA's suburban shopping-leveraged business model does have its advantages, there is no escaping the economic reality of the 52 per cent of tenants who run specialty stores, even if their goods and services are non-discretionary.
Mellowes says the COVID-19 pandemic has impacted many of these tenants who have experienced sales declines.
"We have provided rental assistance to over 600 tenants in accordance with the Mandatory Code of Conduct," he says.
"Our rental collection rate was 77 per cent during the COVID-19 period, and we will continue to pursue payment from tenants of all of the outstanding amounts not covered by agreed waivers or deferrals.
"Our focus continues to be to improve the tenancy mix in our centres with a bias toward non-discretionary categories, to maintain high retention rates on renewals, and to maintain low specialty vacancy by working pro-actively with our tenants in these challenging times."
SCA has estimated a COVID-19 earnings impact of $20.5 million and an $87.9 million decrease in the like-for-like valuation of investment properties.
Of that coronavirus-related impact, $14.4 million comes from an incremental expected credit loss allowance against rental arrears, $4.5 million is in waived rent that is not included in rental income, and around $1.6 million is from additional expenses relating to the pandemic such as cleaning and security.
"The direct impact of COVID-19 on FY20 FFO (funds from operations) is $20.5 million, with the largest contributor to this being expected credit loss allowances due to increased rental arrears," says CFO Mark Fleming.
"In addition, the like-for-like valuation of our investment properties decreased by $87.9 million with $27.4 million of that decrease due to the expected impact of the COVID-19 pandemic on FY21 cash flows.
"In response to the COVID-19 pandemic we raised $279.3 million of new equity in April and May 2020 through an institutional placement and a unit purchase plan," he says, adding this was aimed at strengthening the balance sheet and having liquidity to make more acquisitions as opportunities arise."
As at 30 June 2020, SCA Property had cash and undrawn facilities of $622.8 million and gearing of 25.6 per cent.
"This means that we could fund approximately $300 million of acquisitions and still keep our gearing below 32.5 per cent," says Fleming.
Updated at 11am AEST on 11 August 2020.
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