Retail property owner and developer Federation Centres Ltd (ASX: FDC) reported a solid half-year underlying earnings gain of 8.6% to $129 million. The company increased its property portfolio to 65 shopping centres as of the end of December 2014, up from 57 a year ago. Tenant occupancy was a very high 99.5%.
Federation Centres achieved comparable net operating income (NOI) growth of 3.7%, up from 2.2% in the previous corresponding period. The property trust's redevelopment pipeline value stands at around $1.3 billion, with four projects worth a combined value of over $300 million scheduled to be under construction in calendar year 2015.
CEO and managing director Steven Sewell spoke of the half-year results: "Improved net operating income growth, an enhanced property portfolio performance reflecting the success of the repositioning and leasing strategies we have put in place, sound cost controls combined with conservative gearing levels and lower funding costs are the key elements of the strong result."
Here are the half-year results highlights:
Revenue reported total income $181.1 million, up 8% from $167.6 million
Underlying earnings $129 million, up 8.6% from $118.8 million
Net profit after tax (NPAT) reported NPAT $222.5 million, down 1.9% from $226.7 million
Earnings per share underlying earnings per security 9.0 cents, up 8.4% from 8.3 cents per security
Distribution per security 8.4 cents per security, up 12.0% from 7.5 cps
Proposed merger with Novian
In addition to the half-year results, the company wrote about the recently announced merger plans with Novian Property Group (ASX: NVN). Formerly known as CFS Retail Property Trust Group, Novian is a $7.5 billion retail property group with $14.9 billion in assets under management (AUM).
Federation Centres has $7.3 billion in AUM, so the proposed merger entity should have $22.2 billion in AUM combined among 102 properties. That would make it the second-largest retail property group after Scentre Group Ltd (ASX: SCG), which operates the Westfield Shopping Centre retail properties in Australia and has $36.7 billion in AUM.
Outlook
Full-year earnings for financial year 2015 are expected to be around 18 – 18.3 cents per security. Distributions to investors are expected to be around 90% – 95% of underlying earnings.
Analyst earnings growth forecasts are for an average annual 5% over the next two years. The stock is trading at 16 times forecast earnings and is offering a 5.6% yield unfranked. For long-term income investors, Federation Centres Group could be a stable source of dividends since earnings can potentially grow along with the general economy over many years.
