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SCA Property Group's (ASX: SCP) convenience shopping centre-focused business model paid off in the December half with profit rising 14.1 per cent to $102.9 million, amidst high occupancy rates for its supermarket and discount store tenants.
The specialty store vacancies that weighed down on SCA's June half results have started to ease slightly as well, while rent reversions and incentives have started to stabilise as the pandemic impacts recede.
However, the increase in profit is skewed by a $63 million increase in the fair value of investment properties, and the group has issued guidance for a 1.7 per cent drop in funds from operations (FFO) per unit. This is assuming no further outbreaks or significant government restrictions.
"Throughout the COVID-19 pandemic, our convenience-based centres have benefited from the shift to shopping locally," says SCA Property Group chief executive officer Anthony Mellowes.
"Our anchor tenants have experienced strong sales growth and our specialty tenant sales have recovered following the easing of restrictions.
"We have continued to conclude leasing deals with 96 renewals and 63 new lease deals completed during the first half. Specialty vacancy is stable at 4.8 per cent and specialty occupancy costs are stable at 9.9 per cent."
Nevertheless, he notes the pandemic has led to sales declines for some specialty tenants.
"We have provided rental assistance to over 800 tenants, including both SME tenants under the Mandatory Code of Conduct and also non-SME tenants on a case-by-case basis. Total cash collection rates stabilised at around 99 per cent by the end of the period.
"We have continued to progress our sustainability program, including commencing a new partnership with The Smith Family, investing in energy saving initiatives such as efficient lighting and building automation systems, and increasing our focus on our ESG aspiration and strategy."
CFO Mark Fleming estimates a direct impact of approximately $6.9 million from COVID-19 on funds from operations in the December half, mostly due to a rental income shortfall due to waivers, deferrals and unpaid rent.
"In addition, in response to the COVID-19 pandemic, we raised $279.3 million of new equity in April and May 2020 which continues to have a dilutive impact on our earnings per unit," Fleming says.
"We are well progressed in redeploying this equity, with $178.9 million of acquisitions completed during the period."
These acquisitions include Bakewell (NT) for $39.4 million and Auburn Central (NSW) for $129.5 million, plus transaction costs.
The company highlights it continues to have among the lowest rents in the sector at $788 per square metre, and intends to maintain a low specialty retail rate, its high retention rate on renewals, and improve the tenancy mix with a bias towards non-discretionary categories.
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