In morning trade the Shopping Centres Australasia Property Group (ASX: SCP) share price has edged slightly lower following the release of its full-year results for FY 2018.
At the time of writing the shares of the owner of sub-regional and neighbourhood shopping centres and freestanding retail assets are down 0.5% to $2.43.
What happened in FY 2018?
For the 12 months ended June 30 Shopping Centres Australasia generated revenue from continuing operations of $215.4 million and net profit after tax from continuing operations of $175.2 million. This was a 1.9% increase and 45.4% decline, respectively, on FY 2017's result. The latter was due to a smaller increase in property values compared to the prior year.
This led to funds from operations (FFO) coming in at $114.3 million, up by 5.4% on the prior year. FFO per unit was 4.1% higher year-on-year at 15.3 cents.
Pleasingly, management has lifted its distribution per unit by 6.1% year-on-year to 13.9 cents. This represents a payout ratio of 91% and equates to a yield of 5.7%.
FFO adjusted for maintenance capex, incentives and leasing costs (AFFO) was $105.7 million, up by 5.6% on the prior year.
What were the drivers of this result?
Shopping Centres Australasia finished the year with a portfolio occupancy rate of 98.4% based on its gross leasable area, which was unchanged from a year earlier.
This supported the continued growth that its centres experienced. According to the release, comparable moving annual turnover for stores open more than 24 months rose 1.9% for its supermarkets, 1.9% for discount department stores, 2.7% for mini majors, and 3.3% for specialty stores.
An improved performance by Woolworths Group Ltd (ASX: WOW) operated Big W stores was a key driver in the solid performance of its discount department store segment.
In addition to this, during the twelve-month period the company completed 123 specialty renewals, with an average rental uplift of 6.1% achieved and no incentives paid.
What about FY 2019?
Management has advised that a key priority in FY 2019 is to optimise the earnings from its centres by continuing to improve the tenancy mix and by ensuring that centre standards are maintained at a high level.
It believes this will support ongoing sales growth for its specialty tenants, which in turn should allow further positive rent reversions and an increase in its rent per square metre over the coming years.
Positively, the company is acutely aware of the tough trading conditions being faced by some retailers right now and intends to focus on evolving its mix toward more resilient retail categories.
For FY 2019 management has provided guidance of FFO per unit of 15.6 cents, 2% higher year-on-year. It expects to then pay approximately 92% of this out as a 14.3 cents per unit distribution.
This guidance includes the acquisition of Sturt Mall in August 2018 and the launch of SURF 4 in late FY 2019, but it does not include any other acquisitions or divestments that may occur over the next 12 months.
Should you invest?
I thought this was a solid but unspectacular result from Shopping Centres Australasia and I'm not overly surprised to see its shares more or less flat today.
But overall, I think the company is a good option for income investors along with industry peer Aventus Retail Property Fund (ASX: AVN). I feel both shares look about fair value and well-positioned to grow their dividends at a rate above inflation for the next few years.
