The supermarket wars have done little to dent the earnings of retail landlord Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) with the group posting a more than one-third increase in net profit.
Shares in the neighbourhood shopping centre operator jumped 0.7%, or 2 cents, to $2.06 after management unveiled a 34.9% climb in statutory net profit to $150.5 million and a 14.8% increase in funds from operations to $80.1 million for the year ended June 30, 2015.
However, once you account for the increase in shares on issue from its capital raising and exclude rental guarantees and allowance for vacancies, distributable earnings per unit is only up a more modest 2.9% to 12.81 cents per share.
But this hasn't stopped SCA Property Group from upping its dividend by 3.6% over the previous year to 11.4 cents a unit, and it's promising further growth for the current financial year with distributable earnings per unit forecast to rise to 13.3 cents and distributions to increase to 12 cents per unit.
Management is feeling upbeat about its future as growth in rents to specialty retailers offset moderating growth among its supermarket anchor tenants with grocery giants Woolworths Limited (ASX: WOW) and Coles owner Wesfarmers Ltd (ASX: WES) fighting for market share amid intense competition from offshore rivals.
The supermarket battle isn't weighing on SCA Property Group's earnings but the risk is there.
Fortunately, vacancy rates for smaller specialty retailers have dropped to 3.9% of gross leasable area (GLA) from 8.6% in 2013-14 and rent has increased to $650 from $630 a square metre over the same period.
"During FY15 we had 50 specialty tenant renewals, and an average rental uplift of 7.3% was achieved," said the group's chief executive Anthony Mellowes. "This is a positive start to our first rent renewable cycle which will continue though FY16 to FY20."
This is a good sign not only for the group but for the wider economy that's struggling to gain much growth traction due to fragile consumer and business confidence.
There are also acquisition opportunities from the fragmented market with SCA Property Group buying eight centres for $233.1 million during the year.
The group raised $210 million though a US private placement in August last year and $175 million via an Australian dollar medium-term note. It also received $142 million from its unit purchase plan and equity placement.
But as it stands, the stock looks fairly valued to me and I don't think there's enough in the result to trigger another significant share price rally after its 15.4% increase over the past year.
