This morning, shopping centre landlord Region Group released their first half of 2023 results, which were good, though overshadowed by the RBA rate rise in the afternoon. Since the last reporting season Shopping Centres Australasia Property Group (SCP) has been through a renaming moving from SCP to Region Group reflecting the groups continued growth in regional Australia and further afield.

Key Points:

  • Profits: up +5.9% at $85.7 million, steady growth reflecting contracted rental growth and tenants signing new leases at an average 5% above previous levels. This reflects the on-discretionary nature of RGN’s tenants, who saw sales increase by 6.4% over the half.
  • Distributions: Interim distribution is up +4.2% to 7.5 cents per share; no surprises here with the dividends being declared 29/12 and paid into our investors’ bank accounts 31/1!
  • Operational Performance: SCP continues to manage its portfolio well, with occupancy at 98% with a strong average lease term of 6.4 years. Tennant sales in the centres were solid as expected +6%, and interestingly, 51 supermarkets and Dan Murphy’s are now paying turnover rent up from 20 two years ago.
  • Balance Sheet: Gearing below 35-40% target range at 31%, though this decreased in January after some asset sales which were done at a premium to book value. RGN’s average interest cost is 3.2% that, largely hedged for the next five years. No debt maturities till late 2024.
  • Guidance: Management has guided for 15.2 cents distribution for FY23 = 5.7% yield

Macquarie Bank is on of HNW’s preferred bank stops and appears in several of the HNW portfolios as it offers exposure to a global investment bank with a heavy weighting towards stable funds management earnings and will benefit from a falling AUD. Unlike the major trading banks that operate in a competitive oligopoly where any moves to grow market share are swiftly matched by the other banks, Macquarie’s growth is not constrained by Australian GDP growth.

Region Group is held in several of the HNW portfolios and offers the portfolio exposure to non-discretionary retailing via a diversified portfolio of neighbourhood shopping centres typically anchored by a Woolworths or Coles supermarket with an accompanying Dan Murphy’s or BWS. Unlike better-known retail landlords such as Scentre or Stockland, RGN’s tenants are not particularly exposed to the impact of online sales, with consumer staples and alcohol,  as well as medical and personal services such as haircuts,  are not easily delivered online and bought almost entirely by local Australian residents.  Long leases to quality tenants such as Woolworths, Coles and Aldi give a high degree of confidence that RGN can maintain and grow their distributions over time.

RGN finished down -3.6% today after  running hard into the result. Before the RBA decision at 2:30 pm RGN was flat, but was sold off along with the broader property sector.