Is there value in the Scentre share price?

The Scentre Group (ASX: SCG) share price has slumped 44% lower this year. Could there be hidden value in the ASX REIT today?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Scentre Group (ASX: SCG) share price has been an interesting one to watch in 2020.

The S&P/ASX 200 Index (ASX: XJO) has bounced back strongly since the March bear market. Although the Scentre share price has partially recovered from its March lows, this has been to much lesser degree than the ASX 200.

I thought I'd take the chance to dive into what exactly Scentre does and how the Scentre share price is performing in 2020.

What does Scentre Group do?

Put simply, Scentre is the owner and operator of Westfield shopping centres across Australia and New Zealand. It is also an Australian real estate investment trust or 'REIT'.

This means that, under normal circumstances, Scentre is a strong ASX dividend share. REITs are required to payout at least 90% of yearly profits to shareholders under the trust structure.

Scentre is heavily concentrated in the retail sector given its $56 billion in retail real estate assets under management.

How has the Scentre share price performed this year?

Unfortunately for investors, Aussie shopping centres have not been a great investment this year. The Scentre share price has fallen nearly 44% this year to just $2.15 per share. 

While retailers like JB Hi-Fi Limited (ASX: JBH) have soared in value, this has been predominantly due to significant online sales.

Without heavy foot traffic, it stands to reason that Aussie shopping centres will see a fall in income. That's because fewer shoppers means tenants (i.e. retailers) may be unable or unwilling to pay their usual rent throughout the coronavirus pandemic. This translates into less rental income for Scentre and lower free cash flow available for dividend payments.

Currently, no one knows what will happen in the next 3 months, let alone the next 3 years. So how can we say whether the Scentre share price is good value right now?

Are there better-priced REITs on the ASX?

These are very unusual times, particularly given the restrictions that still exist on the use of many public spaces. If an ASX share has fallen 40% lower, I tend to think there are smart investors who possibly know something I don't.

The best option in my books is to look at relative value. The COVID-19 restrictions should (in theory) affect all retail REITs. Therefore, comparing the Scentre share price against its peers can help tell us if its good value.

I think Vicinity Centres (ASX: VCX) and SCA Property Group (ASX: SCP) can be regarded as fairly comparable retail REITs to Scentre Group.

The Scentre share price trades at a price-to-earnings (P/E) multiple of 9.67 with an 8.93% dividend yield. It also boasts a market capitalisation of $11.16 billion which is larger than both Vicinity ($6.5 billion) and SCA ($2.4 billion).

SCA Property shares trade at a relatively more expensive P/E ratio of 12.98 while Vicinity trades at a lowly 4.37.

I don't think dividend yields are really worth comparing given the uncertainty around FY20 distributions at the moment.

Foolish takeaway

From a quick analysis, I don't think the Scentre share price is a great value buy right now. Retail real estate is one of the sectors that could continue to be challenged by COVID-19 restrictions for quite some time.

It appears that the Vicinity Centres share price is relatively cheaper than Scentre. Combined with the relative uncertainty over dividends this year, I don't think I'll be buying Scentre shares at $2.15 per share.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Shopping Centres Australasia Property Group. 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.

More on REITs

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
REITs

Qualitas Real Estate Income Fund declares August 2026 distribution

Qualitas Real Estate Income Fund announced a distribution of 1.0668 cents per unit for August 2026.

Read more »

Group of successful real estate agents standing in building and looking at tablet.
Earnings Results

Waypoint REIT posts distributable earnings growth and confirms FY26 outlook

Waypoint REIT delivered 3.4% DEPS growth and strong leasing results in 1H26, affirming full-year guidance amid a cautious sector outlook.

Read more »

Three smiling corporate people examine a model of a new building complex.
Earnings Results

Cromwell Property Group lifts FFO and expands assets under management in FY26

The company has announced portfolio progress and outlined plans for further expansion.

Read more »

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.
REITs

Arena REIT faces leasing challenge after Edge Early Learning enters administration

Arena REIT updates the market after tenant Edge Early Learning enters voluntary administration and explores alternative leasing solutions.

Read more »

Middle-aged woman working on a laptop.
Earnings Results

Ingenia Communities posts strong FY26 with profit up 45% and guidance exceeded

The company blasts through guidance with surging FY26 profit and continued growth across developments and rental income.

Read more »

Increasing blue arrow with wooden property houses representing a rising share price.
REITs

Carindale Property Trust FY26: FFO jumps, distributions up 5%

Carindale Property Trust grew FFO by 8.8% and distributions by 5% for FY26, reporting record occupancy and higher retail sales.

Read more »

Group of successful real estate agents standing in building and looking at tablet.
REITs

Abacus Group FY26 results

Abacus Group delivered $81.2 million in FY26 FFO and maintained distributions as it advances its pure-play commercial REIT strategy.

Read more »

Beautiful young couple enjoying in shopping, symbolising passive income.
Earnings Results

Scentre Group shares on watch as 2026 half year earnings climb and guidance gets a boost

Scentre Group boosts 2026 half year FFO, upgrades guidance, and reports record Westfield customer visits.

Read more »