Scentre Group Ltd (ASX: SCG) reported a strong march quarter generating a comparable specialty sales growth of 5.8% in Australia as well as an increase of 4% over the twelve months ended on March,2015. Mini majors and Specialties segments contributed to the growth during the quarter, increasing by 8.7% and 5.8% respectively. Despite challenging conditions, the group has been improving its retail sales in Australia over the twenty one months ended on March 31
st, 2015, driven by fashion, footwear, Jewellery, homewares and telecomm segments. Telecom, Jewellery, Homewares and Footwear witnessed an increase of 21.8%, 9.1%, 6.2% and 4.5% respectively over the twelve months ended on March 31
st, 2015. Meanwhile Cinemas segment reported an outstanding growth of 25.8% during the quarter while the homewares and telecom which rose by 27.5% and 12.2% respectively
With regards to the New Zealand segment, the comparable retail sales rose by 5.1% in the March quarter and by 2.1% for the twelve months ended on March 31
st, 2015. Majors and specialties segment have driven the growth, witnessing an increase by 4.9% and 5.9% respectively. Meanwhile, Mini majors also posted an increase of 2.9% during the quarter, despite declining by 1.5% in the twelve month period ended on March.
Scentre Group encompass half of its assets (by value) at NSW, followed by Victoria and Queensland which represents 14% and 16% of the asset value portfolio respectively. Retail sales at Victoria and NSW delivered solid growth of 10.5% and 7.3% during the quarter, while the retail sales at WA declined by 1.2%.
Portfolio by Region (Source: Company Reports)
Meanwhile, the company is taking initiatives in the digital space to improve connect with the Westfield shoppers. Scentre Group launched a customized in house digital advertising network with 1,200 digital displays across its portfolio on April. Also, SCG intends to launch Wi-Fi at 26 centers by the end of 2015, which will be available to the shoppers.
The Group has been expanding its operations in order to sustain the growth and accordingly planned a development pipeline with investments of over $505 million this year. SCG will be developing new projects at Hurstville, Kotara and Casey Central as well earlier reported projects at Chatswood and North Lakes. The company undertook $105 million upgrade of the entire center at Hurtsville, and is launching new fashion retailers, Woolworths supermarket, Big W, Rebel Sport and JB Hi Fi. The present movie complex at Hurtsville will also be upgraded by adding a Vmax as well as a new alfresco dining area adjacent to the cinema entrance. At kotara, Scentre Group is investing $55 million for developing new outdoor entertainment and leisure areas with ten restaurants adjoining the new Event cinemas. The Event cinemas will have eight screens with Vmax and Gold Class. SCG is infusing $155 million capital to the Casey central project at south east growth corridor of Melbourne to expand the small (6,500 sqm) center into 28,700 sqm. The project will add Coles supermarket, Woolworths, Aldi supermarket, Target and 78 specialty stores. Meanwhile, the Chatswood and North lakes project developments are underway, with SCG making investments of $110 million and $80 million respectively. Moreover, Scentre Group intends to invest an amount of $670 million for developing the project at Pacific fair and AMP capital which is expected finish by next year. SCG finished the third stage of development Miranda project which has cinemas and outdoor casual dining area.
Scentre Group Capital Expenditure (Source: Company Reports)
As per the operational highlights, the portfolio maintained the lease of 99.5%, as of March 31
st, 2015. The average specialty retail sales improved to $10,315 per sqm in Australia and to NZ$10,216 per sqm in New Zealand. The comparable specialty store rent in Australia rose by 2.4% for the twelve months (ended on March). But the specialty store occupancy cost reduced by 20 basis points from December 2014 to 18.2% as of March 31
st, 2015. Meanwhile, SCG issued $2.1 billion of senior unsecured bonds which comprises £400 million seven year bonds with a coupon of 2.375%, US$500 million of six year bonds having the coupon rate of 2.375% as well as US$500 million of 10.5 year bonds with coupon of 3.25%.
SCG portfolio as of December 2014 (Source: Company Reports)
Outlook
SCG shares surged around 17.3% over the last one year since its restructure from Westfield. We believe that the stock still has potential as the loose monetary policy might drive the consumer spending, and thus the group’s shopping centers. Moreover, Scentre Group reaffirmed that its funds from operations might improve by 3.5% to 22.5 cents per security, while expects distribution to increase to 20.9 cents per security for the twelve months ended on December 31
st, 2015. With the group trading at an attractive P/E of 9.24x, we believe that investors need to hold the company to derive further benefit from the stock.
Accordingly, we reiterate our “HOLD” recommendation at the current price levels of $3.84
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