The Scentre Group (ASX: SCG) share price has collapsed in the last month. Scentre shares were trading around the $4 mark for most of January and February, but today, you can pick some up for just $1.93. That's a 51% turnaround in just over a month. Scentre shares are now trading on a price-to-earnings ratio of just 8.66 and a trailing dividend/distribution yield of 9.98%.
So, is this a buying opportunity for the owners of the famous Westfield shopping centres in Australia and New Zealand?
Why Scentre shares have crashed through the floor
As you might expect, this crash is completely related to the coronavirus outbreak the world is currently dealing with. Retail shopping centres weren't exactly having an easy time before this crisis, but now it's a diabolical situation for them. With bans on public gatherings, reduced economic activity and enforced 'social isolation', no one wants to go to the shops right now, to put it simply.
And the focus on 'experiences' like dining and cinemas that Scentre has been pivoting towards won't offer much solace either.
Having said that, shareholders were offered some relief when the Prime Minister stated today that shopping centres would be considered "essential activities" and will remain open for normal trade.
Scentre Group CEO Peter Allen has said in response: "Our Westfield centres, which include supermarkets, grocery stores, food markets and retail stores are an essential part of the Australian community and, as the Prime Minister has stated today… All our Westfield centres remain open for trade and we acknowledge their importance in delivering goods and services to the community as well as supporting employment and economic activity across the nation."
Even so, I would expect that many of Scentre's retail stores will start to struggle to pay their rent to Scentre if this situation continues for too much longer, and that is terrible news for the company. The only bright spot would probably be the supermarkets like Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL), which are both seeing record sales as people stock up on essentials.
Are Scentre shares a buy right now?
I don't see Scentre going out of business from this, but there's no doubt that earnings are going to take a significant hit in 2020. I wouldn't expect much of a dividend at all this year either, but we'll have to wait and see on that front.
Scentre, like most real estate investment trusts (REITs), employs significant leverage (borrowing) in its business model, which makes it especially vulnerable to such a concentrated threat.
Although its trailing yield does look inviting, I think this is your classic 'yield trap' as there is little chance that Scentre will be able to maintain this payout in 2020.
I like to be certain a company is on stable ground before making an investment, and that's not a diagnosis I can extend to Scentre today, in my opinion.
This company might be offering a long-term buying opportunity right now, but significant uncertainty remains around Scentre's prospects, and so I won't be tempted by this one.
