Thought investing in property was out of reach? Think again. REITs (real estate investment trusts) provide investors a more affordable way to gain exposure to property assets. REITs generally appeal to investors for their exposure to large-scale property assets particularly commercial, and can provide a consistent, reliable income stream.
A REIT is designed to return to investors the capital growth and rental income generated from the asset. The prevailing favourable low interest rate environment in which REITs currently operate are likely to attract investors looking for income options. There are several large and well performing REIT options on the ASX. One reporting this week was Shopping Centres Australasia Property Group (ASX: SCP).
Shopping centres are often seen as a hub for local suburban and regional communities. This is where SCA Property Group primarily operates throughout Australia and New Zealand. The property group is a spin off from retail giant Woolworths Limited (ASX: WOW), who along with Coles is now a major tenant in the $1.35 billion REIT.
SCA Property Group reported statutory net profit of $98.2 million up 128.4% on the previous corresponding period (PCP). Funds from operations (FFO), a more applicable measure of REIT performance, is reported at $37.8 million up 12.5% on the PCP. Portfolio value stands at $1.8 billion up $158.9 million in the six months since 30 June 2014. This is largely attributed to increases in property valuations and acquisitions.
Total portfolio occupancy stands at 98.6% by gross leasable area. Gearing sits at a comfortable level of 35.8% and debt refinancing is completed at a weighted average debt cost of 4.75%. Subsequently, SCA Property Group has raised FY2015 earnings guidance to 12.6 cents per unit and FY2015 distribution guidance to 11.4 cents per unit.
The outlook looks positive for SCA Property Group as it aims to optimise centres and increase rent per square metre with specialty stores and quality long-term tenants. The sector is experiencing the tailwinds of increased valuations and lower interest rates on debt. Consumer confidence and retail spending should also get a lift from lower interest rates and fuel prices.
In turn, SCA Property Group will hope to see further reduction in specialty store vacancy rates which are down from around 20% since listing in 2012 to 5.4% currently. Accretive acquisitions of convenience-based shopping centres and value enhancing development opportunities within the existing portfolio are also part of the group’s core strategy to deliver sustainable earnings and distribution growth.
In the current chase for yield, REITs are on the radar and SCA Property Group looks like a stable option in this sector with its 5.4% unfranked dividend yield.
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Motley Fool contributor Max Cooper does not have a financial interest in any of the companies mentioned.