The Scentre Group (ASX: SCG) share price is trading in the green on Thursday morning. At the time of writing, it is 0.61% higher and changing hands for $4.095 per share. For the year, the stock is 19.4% higher.
The ASX 200 REIT posted its 2025 H1 results on Tuesday. It revealed a net operating income of $1.04 billion for the six months to 30 June, a 3.7% increase from the prior corresponding period. EBIT was also 3.7% higher at $1.02 billion.
The business confirmed 1H FY25 fund from operations (FFOps) of 11.28 cents, up 3% and 0.5% to 1% ahead of market estimates. FY25 expected FFO is guided at 22.75 cents. Scentre Group also upgraded dividends per share (DPS) guidance to 17.72, up 0.5%.
FFO is a financial metric used by REITs to measure core operating cash flow. It adjusts net income by adding back non-cash expenses like depreciation and amortization and subtracting gains from property sales.
Following the results announcement, Macquarie Group Ltd (ASX: MQG) revealed its latest stance on the stock.
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Macquarie's outlook on Scentre Group shares
In a note to investors, the broker confirmed its underperform rating on Scentre Group shares.
It also raised its target price to $3.37, up from $3.18 previously.
At the time of writing, this represents a potential downside of 17.7% for investors over the next 12 months.
"Valuation: Our TP is up +6% to $3.37 (prior $3.18) as we roll forward valuation assumptions. SCG trades at a 15% premium to 30 Jun NTA of $3.54," the broker said in its note.
"Underperform. Retail sector tailwinds should benefit SCG, though we see better value elsewhere in the A-REIT sector with the group trading at 17.2x FFO, a 14% premium to the long-term average of 15.0x."
What else did Macquarie have to say about the ASX 200 REIT?
The broker said that FFOps for 1H FY25 are in line with its forecast, leasing spreads remain resilient, and occupancy is modestly higher over the 6-month period. It noted that Scentre Group's cost-of-debt is stable at 5.7% for the period, and valuations were 1.2% higher half-on-half.
But while there was some positive news, Macquarie noted there were also "not-so-good" things to come out of the results.
"Project income was $2.0m in 1H25 (1H24: $4.1m) and is expected to see a slight profit in FY25 (FY24: $14.6m). This is due to an additional $15m of costs relating to the third-party design and construction of 101 Castlereagh St, which is partially reducing the level of FFO growth this year," Macquarie said.
"Additional costs are primarily due to a facade subcontractor going into administration and the subsequent delays. The project is expected to complete by 1QCY26."
Elsewhere, sales growth is below rent growth. "Specialty sales growth of +4.3% in 1H25 compares to average rental escalations of +4.5%. The average specialty occupancy cost ratio remained stable at 17.2% and SCG continues to see opportunity to grow the ratio over time."
