The Scentre Group (ASX: SCG) share price traded flat this morning after the company released its full-year results for 2016. Despite a respectable performance, it looks as though much of the potential is already priced in to Scentre Group. Here's what you need to know:
- Funds from operations (FFO – the Group's preferred measure of ongoing performance) rose 3% to $1,237 million
- Earnings of 23.3 cents per share
- Dividends of 21.3 cents per share
- Comparable specialty sales grew 2.6% on prior period
- Portfolio remains more than 99.5% leased
- Creation of a Retail Solutions and Customer Experience teams in order to improve customer experience and add value for tenants
- Outlook for 4.25% FFO growth in 2017
- Chermside and Whitford City developments expected to complete in 2017
So What?
A good result from Scentre, whose portfolio leasing levels of 99.5% – among the highest in the industry – are a sure indicator of how in-demand the company's shopping centres are. This should let the business continue to grow rents at above-market rates over the long term, by attracting the most successful retail tenants which in turn attract more customers.
The corollary of this is that tenants must also benefit, which is why specialty sales growth is such a commonly reported indicator. To this end it was good to see Scentre establish separate Retail Solutions and Customer Experience teams, with the responsibility of adding value to tenants and improving customer engagement.
Now What?
It's also important to note that Scentre is currently receiving a significant free kick from lowering interest rates, with the weighted average interest rate falling to 4.5% during the past year. While no debt maturities will occur until 2018, it won't take too many interest rate increases to start impinging on the company's profit growth.
Like former partner Westfield Corp Ltd (ASX: WFD), Scentre is a high-quality business with experienced management, a great group of assets, and a solid development pipeline. The downside is that it is a long-term story and investors should aim to bring extra patience to the table. I don't think Scentre is overvalued today, but nor do I think it is an outstanding buy. I'd consider it a 'Hold'.
