SCA Property Group has demonstrated the resilience of Neighbourhood Centre with results showing improving trading conditions and importantly stronger rental collections.
SCA noted that excluding Victoria, tenant sales were growing strongly in most categories and while considerable uncertainty remains in relation to the COVID-19 pandemic, the announcement by the Victorian government yesterday, shows positive signs toward further growth.
For the three months ended 30 September 2020 (Q1 FY21), the total portfolio generated strong sales growth of 9.0% compared to the corresponding period last year.
Victorian tenant sales growth has been impacted by government restrictions in that State. Many tenants have been forced to close, resulting in sales declines in the Discount Department Store, Mini-Major and Specialty categories. Victoria represents approximately 18% of SCA’s gross rental income.
Outside of Victoria, sales growth continued to strengthen as government restrictions eased and the trend toward customers shopping locally continued. in the SCA portfolio, there are only three specialty tenant categories experiencing sales declines compared to the same period last year, which are Apparel, Cafes/Restaurants and Hairdressing/Beauty.
Nationally, 92% of SCA’s tenants (by number) are open and trading, with 60% open and trading in Victoria and 99% open and trading in the rest of Australia.
SCP’s cash collection rates are gradually improving, but are still below the pre-COVID level.
The cash collection rates are lower in Victoria than in the rest of the country due to the ongoing government restrictions in that State. In September 2020 the cash collection rate in the month invoiced in Victoria was 67% compared to 85% in the rest of Australia (81% for the total portfolio).
As at 30 June 2020 SCA had a receivable of $22.3 million and an expected credit loss provision of $15.3 million which implies that they expect to collect at least $7.0 million of that receivable during FY21. As at 30 September 2020 they had collected $10.4 million of that receivable.
SCA feel that it is unlikely that their cash collection rates will return to pre-COVID levels until the mandatory leasing Code of Conduct has ended. The current end dates for the Code of Conduct vary by State. In NSW, Victoria and Queensland the current end date is 31 December 2020, in South Australia the end date is 3 January 2021, in West Australia the end date is 28 March 2021 and in Tasmania the end date is 1 December 2020. The various State governments may choose to reduce or extend these dates.
SCA has strengthened their balance sheet further, and are well positioned to take advantage of acquisition opportunities over coming months. On 30 September 2020 SCA completed the acquisition of Bakewell NT for $33 million (excluding transaction costs) representing an implied fully let yield of 7.2%. While cap rates for neighbourhood centres have compressed, SCA continue to assess a number of acquisition opportunities and remain confident of completing more acquisitions during FY21.
The improved conditions have provided SCA with the confidence to provide indicative guidance for FY21 earnings and distributions.
Assuming that there are no further outbreaks of COVID-19 in Australia and no further government interventions in response to the COVID-19 pandemic, we forecast that Adjusted Funds From Operations (“AFFO”) per unit, and therefore Distribution per unit (“DPU”), for the first half of FY21 (six months ending 31 December 2020) will be in a range of 5.5 cpu to 5.7 cpu, and that the AFFO and DPU for the second half of FY21 (six months ending 30 June 2021) will be greater than the first half.
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