Tuesday, December 4th, 2012

ASX code: SCP
Share price: $1.43
Industry: Real Estate
Forecast Distribution: 10.4c

SCA Property Group (ASX: SCP) is a newly established real estate investment trust that owns a portfolio of good quality shopping centres across Australia and New Zealand. The group has just listed as an independent and internally managed REIT.

SCP’s shopping centres will be predominantly anchored by non-discretionary retailers, the most notable of which being Woolworths. This is a positive for the group as the tenancy mix focuses primarily on the more defensive consumer staples segment of the retail market.

The weighted average lease expiry (WALE) of 15.8 years suggests SCP has a low risk lease profile. Thus the group is likely to provide a secure, reliable income stream to investors over a long period of time.

The average property age of 2.1 years also indicates the portfolio is comprised of relatively modern assets. This is a positive as SCP will incur generally lower maintenance and upgrade costs in the near to mid-term.

The portfolio is well diversified geographically and also enjoys a sound spread between neighbourhood, freestanding and sub-regional centres.

The gearing ratio of SCP is currently 27%. However, this will likely rise to about 34% following completion payments for 13 properties currently under development. This is still a quite comfortable level of gearing given the quality of tenants and longevity of lease terms.

SCP has forecast that the group will deliver a 10.4c distribution per stapled unit in the first full financial year, with distributions likely to be paid bi-annually in February and August. Also worthy of note is that about 35% to 40% of the distribution in FY2014 is expected to be tax deferred.

At current market prices, SCP is trading at a reasonable discount to net tangible assets (NTA) of $1.58 and offers a sound distribution yield of about 7.5%.

Given the solid structure of the property group, yield on offer and the recent softening in term deposit rates, we suspect SCP may well extract some cash from the sidelines in coming months.

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