SCA Property Group have reported that sales results from tenants during the current half year period has been quite volatile. Some tenants have experienced stronger trading performance since the commencement of the COVID-19 restrictions, while others have been negatively impacted.
Anchor tenants have performed well, with supermarket moving annual turnover as at 31 May 2020 up to 4.4% (compared to 2.6% as at 31 December 2019) and discount department stores MAT was up to 6.6% (compared to 3.4% as at 31 December 2019).
The performance of mini-major and specialty tenants has been mixed. Mini-majors MAT as at 31 May 2020 is 2.7% (compared to -1.0% as at 31 December 2019). Many specialty tenants have experienced a significant decline in sales due to COVID-19 related trading restrictions and forced (or voluntary) store closures, including gyms, nails, beauty, massage, cafes, restaurants, apparel and some services. Specialty MAT is down to -1.1% (compared to 2.3% as at 31 December 2019).
A rebound in May 2020 sales has been evident, with supermarkets, discount department stores and mini-majors all recording increases compared to the same month last year. Specialty store sales continued to be impacted by store closures, albeit a reduced number. Excluding stores that were closed, specialty comparable store month-on-month sales growth in May was +3.8% (rather than -9.8%).
While June 2020 sales data will not be available until mid-July, anecdotally trading has continued to improve from May. At present, 97% of the Group specialty tenants are open and trading (up from a low point of 72% on 17 April 2020).
For the four months from March 2020 to 19 June 2020 there has been a cash rent shortfall of $22 million for collections vs billings. A portion of this amount has or will be granted to tenants as waivers or deferrals pursuant to the Code of Conduct. To date SCP has granted $5.4 million in waivers or deferrals to tenants in respect of March, April and May 2020. This number is expected to increase as the Group complete processing claims in respect of March, April, May and commence processing claims in respect of June 2020.
On 3 February 2020, SCP gave guidance for full year FY20 distributions of 15.1 cents per unit. Today SCP announces the distribution payable for the period from 1 January 2020 to 30 June 2020 to be 5.0 cents per SCP Stapled Unit which will take the full year distributions to 12.5 cents per unit. Some of the reduction is attribute to the dilution which occurred as a result of the equity raisings earlier in the year.
SCA also announced the results of its property valuations as at June 2020 with the total value dropping by $94.6m (or 2.9%), from $3,232.8m as at December 2019 to $3,138.2m as at June 2020.
The valuation decrease was attributed to four main drivers being:
– Capitalisation rate softening of 5bps from 6.46% at December 2019 to 6.51% at June 2020;
– Valuation NOI decrease of $2.6m or (-1.2%) from December 2019;
– COVID-19 once off rent relief adjustments of $27.4m; and
– Discounted cash flow valuations adopting more conservative let-up assumptions and lower market rent growth.
Neighbourhood centre valuations decreased by 2.1% overall, while sub-regional centre valuations decreased by 5.2%. Cap rates for sub-regional centres softened by 10bps to 6.84% while neighbourhood centre cap rates softened by only 3bps to 6.39%. Valuation NOI declines and COVID-19 one-off rent relief adjustments were also greater for sub-regional centres than for neighbourhood centres.
The spread of Covid-19 has created heightened valuation uncertainty. As a result, the independent valuers have included a statement within their valuation reports highlighting a “material valuation uncertainty”. This statement is intended to highlight that due to the current extraordinary circumstances, less certainty can be attached to the valuation than would otherwise be the case.
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