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Valuation of $2.50
stale
Added 2 years ago

August 22:

I don't think distributions will get anywhere near my predictions made last year anytime soon (or ever).

I just don't see the long term upside here to t a 5% yield. Few things to beware of here:

  • Leasing spreads are still negative.
  • High contracted specialty rent increases are good, however only to the point the tenant still pays them. Do SCG still have that sort of market power?
  • Big gap between FFO and distributions. This is mostly because of capex. SCG hasn't done a good breakdown of what items this capex relates to.
  • Cost of debt is close to cap rate of portfolio (4.2% vs 4.87%) and likely to rise.

On the contrary, I do think that it's a good reflection on management that there was no cap raise during Covid. Maybe the market just thinks a discount rate of 6% is enough given the risk and maybe I'm pricing the risk incorrectly by plugging in 8-9%?


November 2021:

Positive quarterly update. I think negative leasing spreads will mean that distributions get back to pre covid levels by CY24.

I would be very surprised if distribution growth can be sustained above inflation in the long term. Retailers can no longer get the same bang for their buck in a shopping centre and this will make it very hard to increase rents.

Assuming a distribution of $0.18 for CY 22, a strong uplift in CY23 and then a steady growth in line with inflation.

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August 2021:

Against a reported NAV (which capitalises management costs that SCG charges itself and capital partners....) of $4.27 you would be getting a distribution yield of 5.4%..... if trading conditions get back to where they were in 2019. On todays price you'd be getting 8.7%. HOWEVER Not once are leasing spreads mentioned in the whole presentation. VCX who I believe are comparable mentioned spreads of 12.7% in their presentation. This makes me think that even once no more restrictions are in place there would still about two years before this gets back to paying distributions at levels it was in pre covid times.


On top of this:

VCX has a lower cost of debt

VCX has a more diverse portfolio of retail assets

VCX has a higher current distribution yield

VCX has a higher distribution yield based on pre covid numbers

VCX has a higher portfolio cap rate


Not a fan of these guys but will upgrade my valuation to $2.50 based on SCG eventually getting back to pre covid levels and resultant 9% yield . NAV and NTA would not hold up on an open market.

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Valuation of $4.27
stale
Added 3 years ago
Latest NTA per security as per 30 June 2021
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#Bull Case
stale
Last edited 3 years ago

A retail REIT that is no doubt an ugly stock right now, with Sydney still locked down with no end in sight. Breakdown of their locations are below, which highlights how much exposure SCG has to Sydney:

  • Sydney: 15 centres
  • Melbourne: 7 centres
  • Brisbane: 6 centres
  • Perth: 4 centres
  • Adelaide: 3 centres
  • Canberra: 2 centres
  • NZ: 5 centres 

Rent/cash collection is still likely to be unstable going forward, and I think it would not be shocking to think a trim in the dividend would be coming.  However it is important to note that as at 31 Dec 2020 the net assets per security is $3.63. Even with a portfolio devaluation the stock is still likely to be undervalued. Gearing is not too horrendous. SCG centres are located in prime locations which are arguably better than VCX locations. 

Based on company presentations management has commited to 14.00 c per security for FY 2021 - almost 5% dividend yield. Goldman still has a BUY rating.

 

Disclosure: I own SCG and have accumulated

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