The Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) share price is underperforming its peers today after getting hit by a broker downgrade.
Shares in the neighbourhood shopping centre operator tumbled 1.7% to $2.85 during lunch time trade.
It doesn't help that the S&P/ASX 200 Index (ASX: XJO) is getting sold off, although other mall operators are holding up better than the Shopping Centres Australasia (SCA) share price.
The Unibail-Rodamco-Westfield CDI (ASX: URW) share price is flat. The Vicinity Centres (ASX: VCX) share price dipped 0.4% and Scentre Group (ASX: SCG) share price shed 1.1%.
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SCA share price hit by downgrade
A downgrade by Macquarie Group Ltd (ASX: MQG) is a likely explanation for the underperforming SCA share price.
Macquarie's decision to cut its rating on the ASX property group to "neutral" comes even as the broker upgraded its forecasts for the shares.
The increase in earnings estimates is driven by the company's recent acquisitions. But Macquarie warns that growth will be more difficult to come by from here.
Running out of puff
The broker said:
Over the last five years, SCP [Shopping Centres Australasia] has on average acquired ~$230m of assets p.a. SCP has now acquired $348m of assets in 1H22.
However, with gearing now ~36% on a pro-forma basis, there is more limited headroom for further acquisitions.
In addition, SCP has also flagged a potential shift into funds management on behalf of institutional equity. With cap rates compressing in key sub-sectors, we believe this is a signal SCP is finding it more difficult to acquire assets above their WACC.
One also shouldn't forget that it takes time for funds management platforms to generate meaningful earnings.
COVID winner losing its shine
This appears to leave the SCA share price vulnerable to a sell-off after its 14% rally this year. The regional mall operator has been a beneficiary of the COVID-19 lockdowns as more Aussies shop local.
The tenants at these centres are usually the major supermarket chains, which also benefited from the rolling lockdowns. This explains why the Woolworths Group Ltd (ASX: WOW) share price and Coles Group Ltd (ASX: COL) share price have held up over the course of the pandemic.
What is the SCA share price worth?
Macquarie said the tide was turning for SCA even though the shop local theme will remain a feature on the retail landscape.
"However, the share price implies ~60bps of cap rate compression (or 12% increase in asset valuations), which we believe captures this upside risk," said the broker.
"With a more limited balance sheet, and downside risk to free cashflow, we downgrade to Neutral."
Macquarie's 12-month price target on the SCA share price is $2.94 a share.
