Region, formerly known as Shopping Centres Australasia Property Group, has reported a net loss of $123.6 million AUD ($80.7 million USD) for the 12 months ending in June. This marks a significant drop from the $487.1 million AUD profit recorded in the previous year. The decline in the company's retail-property portfolio value has been attributed to higher interest rates and the impact of the ongoing Covid-19 pandemic.
During the six-month period leading up to June, region experienced a like-for-like decrease in property valuations of $74.1 million AUD as the market adjusted to the possibility of a downturn in consumer spending. Despite these challenges, region's annual funds from operations saw a minimal decline of 0.1%, amounting to $192.5 million AUD, compared to $192.7 million AUD the previous year.
On a per-security basis, adjusted funds from operations remained steady at 15.3 Australian cents, matching last year's figures. This is above the 15.2 cents/security guidance that was provided to investors as recently as February.
Similar to other real-estate investment trusts, region has been affected by the rising floating interest rates imposed by the Reserve Bank of Australia in an effort to curb inflation. During their first-half result announcement in February, region projected a 3.6% 3-month BBSW assumption for the second half.
The decline in value and subsequent annual loss for region underscores the challenges faced by the Australian real-estate sector as it strives to recover from the impact of Covid-19. Despite these difficulties, region remains committed to weathering the storm and adapting to the changing market conditions.
Solid Leasing Performance Drives Strong Operating Performance in Convenience-Based Retail Properties
The operating performance of our portfolio of convenience-based retail properties remains strong, fueled by solid leasing performance and high occupancy rates. According to Chief Executive Anthony Mellowes, Region's neighborhood malls offer investors some protection in the event of a recession in Australia and a downturn in consumer spending.
Anchored by a Woolworths supermarket, many of our properties prioritize food and drink, which are essential items in household budgets. This focus on essential products sets us apart from other consumer goods.
Mellowes added that we have achieved a 4.5% sales growth across all categories, with supermarket sales showing a steady increase of 3.4%. Despite cost-of-living pressures and lower consumer sentiment, Australians continue to prioritize life's essentials. Additionally, our specialty tenants have shown resilience during these challenging times.
Understanding the valuation of commercial real estate is crucial. Typically, it is based on the capitalization rate, which is calculated by dividing the annual net income produced by a property by its purchase price. Similar to bond yields, rising cap rates indicate falling values, and vice versa.
Over the past six months through June, Region reported that the weighted average cap rate of our portfolio has slightly softened by 18 basis points to 5.85%.
Moving forward, Region provided its earnings guidance for FY 2024. The company expects FFO (Funds from Operations) per security to be 15.6 cents and AFFO (Adjusted Funds from Operations) per security to be 13.7 cents. Moreover, the target distribution payout ratio is approximately 100% of AFFO per security.