Federation Centres resurrection complete with Goldman Sachs buy recommendation

The resurrection of the former debt-laden shopping centre owner and manager Centro into Federation Centres appears complete with Goldman Sachs upgrading its recommendation for the A-REIT from ‘neutral’ to ‘buy’.

Goldman Sachs A-REITs analyst Simon Wheatley says Federation Centres is now trading at a 6% premium to its net tangible assets of $2.22, but says this is justified due to its earnings per share (EPS) growth profile.

In his latest monthly A-REITs report, Wheatley notes the forecast EPS three-year compound annual growth rate for Federation Centres is 6.9% – among the highest of A-REIT stocks covered by Goldman Sachs “with potential further upside from acquisitions and development activity”.

“Federation Centres forecast 5.6% dividends per share yield (based on an 85% payout ratio) compares to the sector average of 5.2%,” says Wheatley.

“Overall, we think that Federation Centres has earnings catalysts in the short to medium term that many of its sector peers lack.”

Factors that led Goldman Sachs to upgrade its recommendation on Federation Centres include the ongoing simplification of its syndicates business, asset acquisitions, non-core asset disposals and the rollout of its $1.1bn development pipeline.

Federation Centres plans to develop 16 shopping centres over the next five years.

The A-REIT reported an interim net profit $115.91 million for the six months to December 31 - its first complete first-half results under its new Federation Centres brand.

This compared with a loss of $100 million recorded in the previous corresponding period, when it was known as Centro Retail Australia.

Federation Centres also reported a healthy balance sheet with its gearing down to 29.9% after entering into a number of joint-ownership agreements.

The Federation Centres portfolio comprises 78 properties valued at $6.6 billion with an occupancy rate of 99.5%.

It continues to simplify its previously complex mix of unlisted shopping centre syndicates with $548m of assets acquired by the group and $438m sold on market.

The company expects $1.2bn of assets expected to be transacted by 2015 with $500m to be sold on market and $700m potentially acquired by the group, subject to further capital recycling initiatives.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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