There are a number of high-quality shopping centres listed on the ASX, are any of them worth a buy?
Here are some of the top ones to consider:
Scentre Group (ASX: SCG)
Scentre Group is the entity which owns all of the Westfield shopping centres in Australia and New Zealand. It has a market capitalisation of $22.5 billion.
They are all full of high quality tenants and Scentre Group had a very high occupancy rate of more than 99.5% when it reported its results to 31 December 2016.
However, all is not well in the Australian retail sector. Scentre reported that overall the sales of its tenants only grew by 0.6% in the three months to 31 December 2016 compared to the prior corresponding period.
The Australian retail sector could be about to get a lot tougher because Amazon is planning to launch its full website here soon.
Scentre is currently trading at 18x FY17's estimated earnings with trailing distribution yield of 5.02%. At the current price, I'm not interested in investing in Scentre Group shares.
Westfield Corp Ltd (ASX: WFD)
Westfield is the entity which owns all of the Westfield shopping centres overseas. It has a market capitalisation of $17.5 billion.
The full force of internet shopping is being felt in the USA and Europe more than Australia. You may have seen the stories about abandoned shopping centres in the USA – simply because there was too many retail shops and not enough customers for them all to succeed.
However, Westfield has managed to stay a step ahead by attracting higher quality tenants, even if some of them are mainly using their shop as a showroom.
Westfield is doing better than most of its peers but, ultimately, it still needs its tenants to prosper to increase rents at a satisfactory rate.
It's currently trading at 20x FY17's estimated earnings with a trailing distribution yield of 3.86%. I wouldn't be a buyer of Westfield shares at this price.
Vicinity Centres Re Ltd (ASX: VCX)
Vicinity centres is the owner of shopping centres in many Australian suburbs. It has a market capitalisation of $920 million.
I think Vicinity's smaller centres are most at risk of losing out to internet retailers such as Amazon. A shopping centre needs to have a big draw for potential customers if it is to succeed.
Vicinity has a 50% stake in the huge Chadstone shopping centre. This is a great asset to have and could be the key for Vicinity to succeed in future years.
It's currently trading at 15x FY17's estimated earnings with a trailing distribution yield of 6.29%. I wouldn't want to buy Vicinity shares at the current price.
Foolish takeaway
As you may be able to tell, I'm not very confident in the short-term or long-term prospects of the shopping centres' ability to beat the market.
They may be worth holding for the income if the yield was a lot higher, but the only way that could happen is if the share prices decrease significantly. A recession or the continuing increase of interest rates could see that decline occur.
I'm not a buyer of the shopping centre shares, I'd much rather buy shares of these great businesses that have much better growth prospects.
