SCA Property Group Lifts Guidance After Solid Half

Shopping Centres Australasia Property Group RE Ltd. ((AU:RGN)) has held its Q2 earnings call. Read on for the main highlights of the call.

Shopping Centres Australasia Property Group’s latest earnings call struck an upbeat tone, with management emphasizing steady growth in earnings, resilient asset performance and disciplined capital management. While acknowledging pockets of pressure from higher debt costs, elevated leasing incentives and the legacy Mosaic vacancies, executives framed these as manageable headwinds against a backdrop of rising AUM, firmer cap rates and upgraded earnings guidance.

FFO and AFFO Growth Underpins Higher Distributions

Funds from operations for the first half of FY26 came in at $0.079 per security, representing 3.9% growth versus December 2024 and demonstrating solid cash generation from the portfolio. Adjusted FFO and distributions both landed at $0.069 per security, with AFFO rising 3.0% and the payout ratio holding at a full 100%, underscoring management’s confidence in the sustainability of current distributions.

Guidance Upgrade Signals Continued Earnings Momentum

Management upgraded FY26 earnings guidance to FFO of $0.16 per security, slightly higher than the previous $0.159 target and implying around 3.2% growth on FY25. AFFO growth is guided to roughly 2.9% versus FY25, reinforcing the company’s medium‑term ambition for FFO and AFFO to expand by 3–4% per year and suggesting that current performance is tracking ahead of earlier expectations.

Portfolio Metrics Show Resilient Tenant Demand

Operationally, the portfolio delivered 3.7% comparable net operating income growth in the half, supported by comparable moving annual turnover growth of 3.1% per annum. Occupancy increased to 97.7% and specialty vacancy fell to 4.5%, while average specialty rent reached $930 per square meter with roughly 5% annualized growth since late 2022, pointing to healthy tenant demand and pricing power.

Leasing Momentum and Rent Reviews Support Income Growth

The group executed 177 specialty leasing deals, achieving an average spread of 3.4% as new leases delivered around 7% uplifts, though renewals were broadly flat. Average annual fixed rent reviews stepped up to 4.3% from 3.9%, applying to about 96% of specialty and kiosk tenants and providing an embedded driver of rental growth even as some renewal negotiations weigh on headline spreads.

Balance Sheet Strength and Hedging Reduce Rate Risk

Assets under management rose to $5.4 billion, up 3.9% since June 2025, while NTA per security increased 3.6% to $2.56 and gearing sat at 32.7%, near the low end of the target range. The company has fully hedged or fixed all FY26 debt at an average 2.89% rate, with an average hedged cost of roughly 3% over the next three years, providing substantial protection against interest rate volatility.

Capital Markets Transaction Enhances Funding Mix

In November 2025 the group issued a AUD 300 million six‑year medium‑term note, attracting an order book that was 3.6 times oversubscribed and pricing at a margin of 1.22%. Proceeds were used to repay bank debt and diversify the funding base, which management highlighted as improving overall funding flexibility and helping to underpin future investment and development plans.

Active Capital Deployment and On‑Market Buybacks

The company continued to deploy capital across developments and securities repurchases, spending $32 million in the half with full‑year FY26 capex expected around $65 million driven by several centre expansions. In parallel, SCA Property bought back 6.7 million securities during the half at an average price of $2.39, bringing total repurchases since program inception to 8.9 million units for about $21 million and modestly enhancing per‑security metrics.

Strategic Acquisitions and Funds Management Expansion

During the period SCA Property settled the Treendale Home & Lifestyle Centre for $53 million on an initial yield of about 6.4%, a bolt‑on asset adjacent to an existing centre that deepens its footprint in that catchment. Funds management also grew as the Metro Fund’s AUM increased 5.7% since June 2025 to $752 million, aided by acquisitions such as Dalyellup and West Village strata interests that support recurring fee income.

Higher Debt Costs Emerge as a Manageable Headwind

The weighted average cost of debt rose from 4.3% to 4.6% over the half, tempering some of the FFO uplift generated by operational growth. Management expects the full‑year cost of debt to ease slightly to around 4.5%, but still flagged interest expenses as a headwind that investors should factor into their assessment of near‑term earnings progression.

Leasing Incentives and Mosaic Vacancies Weigh on Returns

New leases required average incentives of 12.3%, roughly equivalent to a 12‑month incentive period, as the group competed for quality tenants in certain locations. Additional leasing capital tied to Mosaic‑origin vacancies reached about $1.2 million in the half with roughly $2.5 million forecast for FY26, and management estimated a residual NOI drag of around $0.5 million for the year from this legacy exposure.

Flat Renewal Spreads and Isolated Weak Deals

Renewal spreads overall were broadly flat, partially masking the strength in new leasing spreads as a small number of weak renewals diluted the aggregate result. Management singled out two bank leases and one pharmacy renewal as particularly soft outcomes that weighed on re‑leasing spreads and serve as a reminder that not all categories can sustain rental growth in the current environment.

Disposals and Comparable Growth Shape Rental Trends

Total gross rental income showed limited headline growth during the half due to prior asset disposals that reduced the income base, even as the remaining portfolio performed solidly. After adjusting for those sales, comparable growth in gross property income was about 3%, highlighting that underlying rental trends remain positive despite the drag from earlier portfolio reshaping.

NOI Growth Moderation Expected in Second Half

While first‑half comparable NOI rose a healthy 3.7%, management kept full‑year guidance at around 3.3%, signaling an expected moderation in the second half. The softer outlook reflects waning benefits from earlier cost‑saving initiatives and some higher property expenses scheduled to phase into H2, suggesting investors should not extrapolate the first‑half run rate.

Buyback Assumptions Tempered by Capital Priorities

The on‑market buyback has so far executed just over 20% of the total program, indicating meaningful capacity remains if conditions warrant further purchases. However, current FY26 guidance does not assume any additional buybacks, with management pointing to competing uses of capital such as the Treendale acquisition and development spend that may deliver better risk‑adjusted returns.

Market Uncertainty and Retail Trading Signals

Management described early calendar‑year trading data for January and February as anecdotal and too limited to draw firm conclusions, hinting at a cautious stance on near‑term retail conditions. They also noted expectations for cap rates to be broadly flat rather than continuing to compress, indicating a more balanced market outlook and less reliance on valuation gains to drive future returns.

Forward Guidance Anchored by Strong Fundamentals

Looking ahead, SCA Property reaffirmed its upgraded FY26 guidance for FFO of $0.16 per security and higher AFFO, supported by a 100% AFFO payout and first‑half FFO of $0.079 already showing 3.9% growth versus December 2024. With comparable NOI expected to grow about 3.3% for the full year, a hedged debt book, capex of roughly $65 million and solid portfolio indicators like 97.7% occupancy and 4.5% specialty vacancy, management reiterated its medium‑term target of 3–4% annual FFO and AFFO growth.

SCA Property’s earnings call painted a picture of a retailer‑anchored portfolio delivering steady growth, disciplined capital management and measured optimism on the outlook. Despite pressures from higher funding costs, incentives and certain weaker renewals, the combination of upgraded guidance, strong leasing momentum and a well‑hedged balance sheet left investors with a broadly positive takeaway on the group’s earnings trajectory and risk profile.