Woolworths Limited’s (ASX: WOW) property spin-off SCA Property Group (ASX: SCP) has listed on the ASX today, at a small premium to its issue price.

Closing at $1.44 today, units in the new shopping centre were issued to investors at $1.40 each. Last Friday, Woolworths completed the institutional capital raising for SCA, raising $185.5 million, with retail investors contributing another $286.5 million. Woolworths’ shareholders will find out how many shares they have been allocated in the coming weeks.

Related: Should you buy SCA, Woolworths’ property fund

Units are currently trading at an 11% discount to the trust’s net tangible asset (NTA) backing, and is currently offering a yield of around 7.4% for the 2014 year. Other comparable trusts, BWP Trust (ASX: BWP)  and Charter Hall Retail REIT (ASX: CQR), both trade at premiums to their NTAs.

As we mentioned back in October, there are some serious shortcomings to the fund, which benefit Woolworths rather than investors in SCA. The property group holds 69 shopping centres around Australia and New Zealand, but 20% of the speciality stores in those centres are currently vacant. That’s why Woolworths has provided a rental guarantee for two years, to cover the shortfall in rent to SCA. If SCA can’t get the occupancy rate higher before the guarantee ends, earnings and distributions are likely to fall.

Another issue we highlighted was that the supermarket leases are only renegotiated every five years, rather than annually based on inflation. That makes it difficult for SCA to grow earnings, without raising further capital or taking on additional debt.

As an example of how unattractive the portfolio is, Woolworths placed $900 million worth of shopping centres on the market in September 2010, and only managed to sell 8 in May 2011.

The Foolish bottom line

We suggested Woolworths shareholders sell their SCA units (once they know how many they have), and not to partake in the equity raising – instead buying shares in Woolworths itself. It’s likely that SCA will set up a mechanism for shareholders with small parcels of shares to be able to sell them, without incurring brokerage fees, although this hasn’t been confirmed as yet.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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