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Is Scentre Group the best REIT for income on the ASX?

Online retail is booming as consumers make the most of fuss-free ways to spend, but it seems unlikely the humble shopping centre will die any time soon.

There is still a solid segment of cashed-up customers who prefer to sample the look and feel of their goods before opening their wallet, and shopping centre retailers worth their salt are doing whatever is necessary to pander to them.

Westfield owner Scentre Group (ASX: SCG) CEO Peter Allen this week warned retailers the company would respond to changing customer tastes by reserving space for the best brands above all else.

Scentre has introduced 289 new retail brands across 34 centres in Australia and New Zealand in the last year, with Allen warning retailers who were not performing will “fall away”.

It’s a tough stance by the company as tensions between centre landlords and their retailers escalate, especially as big-name and customer-loved department store retailers such as Myer Holdings Ltd (ASX: MYR) flail.

The relationship between shopping centre landlords and their specialty retailers is volatile to say the least – the recent debacle with Premier Investments Limited’s (ASX: PMV) threat to pull flagship stores from large-scale shopping centres over unworkable commercial rents comes to mind.

Premier did close 10 stores in the first half of 2018, including its Just Jeans and Portman’s stores in Bourke Street Mall in Melbourne.

But is its hard-nosed approach what will set Scentre apart from its competitors and see it thrive rather than just survive?

Scentre announced a $700 million share buyback on April 5 and opened a hotly-anticipated lifestyle precinct in its Melbourne-based Plenty Valley centre in March, with plans to add 106,000 square metres of space to its portfolio in the 2018 calendar year.

Scentre has also got a greenfield development on the go at Westfield Coomera – a Queensland suburb experiencing unprecedented growth – which will set them back $470 million.

The diverse strategies being executed by Scentre are obvious moves by the company to maintain its competitive position, as peers like Stockland Corporation Ltd (ASX: SGP) begin to show a turnaround from share price slides in the last 12-months.

Waiting in the wings is the owner of 110 Australian shopping centres, Vicinity Centres Re Ltd (ASX: VCX) whose shares have also been on a downward trend in the last 12-months, but rumours Vicinity will release details of its growth strategy in May should give investors a better idea of the company’s future worth.

On the peripheral in the sector is Mirvac Group (ASX: MGR), which manage a diverse portfolio of assets across the office, retail, industrial and residential sectors across Australia.

Mirvac has weathered more share price volatility than its peers in this space in recent times, but its diversification could be a good buffer as players like Scentre continue to work hard to make its ageing assets relevant to changing customer needs.

Macquarie upgraded Scentre to outperform this month, placing a $4.43 share price target on the stock with the broker suggesting it was trading at an 8% discount to its last reported net tangible asset value.

Foolish takeaway

As far as shopping centre retailers go, Scentre would be the best bet in my mind going forward. They aren’t afraid to make changes and they are yet to shy away from a duel with retailers. Its ageing asset portfolio is one consideration, but the impetus on moving forward and meeting customer needs is strong and its future looks likewise.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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