One of the major landlords for Woolworths and Coles, Shopping Centres Australasia Property Group, says there are early signs of a recovery in sales growth from the big supermarkets.
The group reported an increase in half year net profit of $204.7 million driven largely by increasing shopping centres values.
The $1.6 billion group, which was originally spun out of Woolworths, also reported a comparable increase in net operating income - up by 2.9 per cent - helped along by a stabilisation in specialty retailers.
But the surprise was SCA's comments about supermarket sales.
The company said in a statement to the ASX that supermarket sales growth had remained subdued primarily due to price reductions over the last 24 months but that there were late signs of a recovery as indicated by recent data.
"Early signs of a recovery in supermarket sales growth with November 2016 sales up by 2 per cent compared to the previous corresponding period while December 2016 sales were up by 2.4 compared with December 2015."
The company said that while small the turnover rents it received from the big anchor tenants such as Woolworths and Coles could show improvements.
"Turnover rent may become a rental growth opportunity in the future if Woolworths' sales growth improves." the company said.
Anchor tenant turnover rent represents only 0.6 per cent of SCA's gross property income.
It also highlighted the expected rental increases.
"Around 35 per cent of our Australian anchor tenant leases have a minimum 5 per cent increase in base rentals in fiscal 2018 and 2019."
Overall SCA receives about 54 per cent of its gross rent from Woolworths and Wesfarmers Group (the owner of Coles).
SCA also noted that Bunnings had agreed to lease the ex-Masters tenancy at Mount Gambier with a new 12 year lease although the rental would be $300,000 less than Masters lease.
Furthermore, the company said Woolworths / Home Consortium had agreed to pay top-up for lost rent until 2035 or sale of the asset.
SCA reported an increase in value of its Australian investment properties increased from $1.888 billion to $2.2 billion, primarily due to $144.3 million in acquisitions and positive revaluations of $150.6 million.
Average valuation capitalisation rates for SCA's Australian properties firmed from 7.13 per cent to 6.62 per cent.
