The Scentre Group (ASX: SCG) share price fell 1% to $3.94 after the company released its half-yearly results this morning. Here's what you need to know:
- Revenue fell 6% to $1,203 million
- Net profit after tax (NPAT) rose 22% to $1,412 million
- Funds from operations (FFO) rose 4% to $638 million
- FFO of 12.01 cents per security
- Dividends of 10.86 cents per security
- Specialty sales grew 1.5%
- Portfolio is more than 99.5% leased
- Net tangible assets of $3.83 per share
- Outlook confirms forecast FFO growth of 4.25% for the full year, and forecast distribution growth of 2% to 21.73 cents per security
So what?
Scentre Group reported huge profit growth this year, primarily due to property revaluations, while revenues fell due to lower project development revenue. Using management's preferred measure of ongoing profitability, funds from operations (FFO) grew 4% to $638 million.
The company also completed several redevelopments during the year, and commenced others such as its first greenfield (i.e., brand new, not a redevelopment) project in 12 years at Coomera. Scentre's presentation also provides some interesting context into how other businesses are performing:
Technology is clearly booming, but retailers like department stores and cinemas aren't performing so well.
Now what?
If the specialty sales growth of 2% (well below previous years) is anything to go by, Scentre Group could have trouble passing rent increases onto its customers in the coming years. That would make it tougher for investors, even though Scentre does not look expensive compared to its net tangible assets of $3.83 per share.
Speaking for myself, I'm not an investor in Scentre today. As I see it, the best case scenario is that the company continues to grow rents, net tangible assets, and dividends at around 4% per annum. It could be a nice little earner in this scenario, especially for income-seeking investors. However, there's little hope of upside via higher occupancy, as the portfolio is already fully leased. There is also a risk of losing money, for example if interest rates rise significantly or online competition really does start to have an impact.
