A-REIT Outlooks Diverge

The backdrop for retailing landlords is challenging. Macquarie expects comparable income growth will remain in the low single digits for Australian shopping centres. Given fixed escalators for specialty leases of 4-5%, the broker expects negative re-leasing spreads will prevail and this is not a particularly attractive growth profile.

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SCG – Macquarie rates the stock as Underperform

Strictly this is not an initiation, given the broker has simply carried its pre-emptive Underperform rating of the old Westfield Retail Trust across to the new Scentre Group structure. While risk might be low, there is little chance of any sixes being hit at SCG. Distributions will exceed free cash flow as was the case with WRT, but gearing is now higher hence dilutive asset sales will be required to fund the development pipeline, the broker notes.

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