Mosaic reopens stores in Westfield malls after rent deal

Mosaic’s deal with Scentre could herald more agreements as retailers struggle to pay mall rent during the pandemic.

A Noni B retail store in a Sydney mall. Picture: Steven Saphore

Both landlords and their retail tenants could claim victory after the very public rent stoush between giant shopping centre owner Scentre Group and small-cap fashion chain Mosaic Brands was settled, as peace broke out between the bickering companies that could pave the way for further deals.

With shopping centre landlords and retailers watching closely, and investors holding their collective breath as a rental dispute placed billions of dollars in valuations on the line, the owner of the Westfield shopping centres and Mosaic Brands signed a deal.

The women’s fashion chain, whose outlets include Katies, Millers and Noni B, was locked out of 129 of its stores by landlord Westfield over a rent dispute in the midst of the COVID-19 pandemic. Strandbags was also shut out from its stores.

The deal reached between Scentre and Mosaic announced on Monday could be the start of a number of agreements between landlords and retailers as the sector struggles through the pandemic, and create new ways of calculating rent to reflect the economic downturn.

Mosaic Brands announced that following negotiations with Scentre, all non-Victorian stores in Westfield shopping centres had now reopened.

“By agreement with Scentre the commercial terms remain confidential,” Mosaic Brands said, with the confidentiality probably protecting Scentre and other shopping centres from a rush of demands from other tenants for similar rent deals.

It means Mosaic Brands will be able to re-enter its 129 stores that it was locked out of by Scentre a fortnight ago. Mosaic Brands had continued to pay rent but at much lower rates, which Scentre had disputed. Strandbags has also ­reopened its doors. Victorian stores will remain closed due to lockdowns in the state.

Mosaic chairman Richard ­Facioni said: “We’re pleased to have reopened our Westfield stores over the weekend following a mutually agreeable outcome to our negotiations with Scentre Group.

“Our Victorian stores remain temporarily closed for health and safety reasons. We look forward to reopening those stores as soon as it is safe for our team and customers to do so.

“We have had a longstanding relationship with Westfield enabling us to reach a solution that worked for both parties.

“This is a good outcome for Mosaic and, in particular, the 400 affected team members. As we noted last week, shuttered stores work for no one.”

The battle with its landlord reflected wider issues within the sector as tenants demand rent relief and a change in the way rent is calculated.

Shares in Mosaic Brands surged on the rent deal, rising almost 18 per cent to 56.5c, while Scentre rose 5.6 per cent to $2.26. Other shopping centre owners also bounced, with Vicinity Centres up 4.7 per cent to $1.44.

Australian Retailers Association boss Paul Zahra welcomed the rent deal.

“Any leasing deal which reduces the impact of store closures during this difficult period is a very positive market message for both retailers and customers — particularly in the build-up to the all-important Christmas trading period,’’ Mr Zahra said.

“Retailers have shown incredible resilience this year, continuing to trade (where permissible) and welcome customers during low traffic periods. As we head towards an improved position nationally on COVID infections, it would be a great shame to see those efforts undermined by ongoing leasing uncertainty.

“It’s in the interests of all parties to continue to actively negotiate to achieve a workable solution. While we recognise the financial pressure for landlords, retailers are the engine room of our economic recovery and unless they get back on their feet our Australian recession will be deeper and longer for all parties including landlords.”

It is estimated that almost half the estimated $320bn in annual retail sales are generated through shopping centres, from the flagship premium sites such as Westfield Bondi Junction in Sydney and Chadstone in Melbourne, to the small regional sites.

However, landlords might not be out of the woods yet, with ­Mosaic Brands still sticking to its plan unveiled last week to close 300-500 stores over the coming 12-24 months, with other retailers also looking to close stores to focus online.

Property analysts told The Australian that investors saw the reopening of Mosaic Brands as a sign that the landlord had settled the dispute in its favour.

However, they cautioned that yield stocks had traded strongly today, with one noting that “it was only innings one in a post-COVID world” and more disputes were expected between retailers and shopping centres.

There is also pressure from major chains looking to reduce their store footprints and some smaller outlets are not expected to reopen, piling pressure on rents and values, particularly as incentives are expected to rise.

Credit agency Fitch called out the weak performance of the retail sector, which has been crimped by tough measures imposed by governments to contain the coronavirus pandemic, as hurting Australian retail REITs.

Both Scentre and Vicinity Centres, co-owner of Chadstone, plunged to heavy losses, and Fitch warned against expecting a meaningful industry improvement in the second half.

Fitch said the poor performance of retail property portfolios was driven by the impact of rental relief provided to tenants in the June quarter, as well as a decline in valuations due to expectations that structural changes in the sector had accelerated.

“We expect some recovery in the second half as social distancing measures are relaxed and visitations improve, although this remains vulnerable to stricter ­social distancing curbs that may be implemented to combat localised outbreaks,” Fitch said.

The ratings agency predicted the strain would continue to be felt across the sector, particularly as retailers navigate prolonged spending weakness as government support falls off.

Meanwhile, a survey by the Property Council of Australia has cast a shadow over the operation of the Morrison government commercial leasing code, and consequent delays in getting relief to tenants.

The PCA found only a quarter of the amount provisioned for COVID-19 rent relief had been ­finalised through agreements with tenants, reflecting state government delays in legislating.

“The commercial leasing codes have unleashed a red tape octopus that has meant that by mid-August, only one in four dollars of rent relief provisioned by landlords has so far been provided to their tenants in finalised agreements,” PCA chief executive Ken Morrison said.