Property trusts sound alarm on dire outlook

Property trusts exposed to struggling shopping centres locally and offshore have given a grim warning about the tough conditions.

Property trusts exposed to struggling shopping centres locally and offshore have given a grim warning about the tough conditions ahead as the industry is ravaged by the coronavirus.

Local companies GPT and Mirvac have told investors that sales in specialty stores in their malls plunged by about a quarter in March as coronavirus-related restrictions started to bite.

With April also a write-off for shopping centre owners, as many tenants either refused to pay rent or were unable to so, analysts predicted there would be more pain to come.

GPT cancelled some development projects and Mirvac said sales offices for its residential projects had temporarily closed.

Both companies, however, are well-capitalised and diversified, owning office and logistics properties, which should cushion the blow to their operations.

However, the French company that took over the international Westfield empire in 2018 for $32bn, now known as Unibail-Rodamco-Westfield, provided a depressing outlook as it revealed just 20 per cent of rent had been collected in April.

There are hopes this will rise. The company said there were extended payment terms over the majority of April and May rent.

Macquarie analysts said that rent collection was unlikely to reach pre-COVID-19 levels due to the slow ramp-up in discretionary spending and absence of tourism, as well as protracted negotiations between landlords and tenants about waivers and deferrals.

March sales fell 60 per cent in Europe and 55 per cent in the US, and by month’s end most centres had closed, although some are starting to re-open in Europe.

Local companies have kept their centres open but have been hard hit.

GPT is dealing with stressed tenants chasing rent relief, both under the Morrison government’s commercial property code and outside its range.

But in a sign it is unlikely to tap the market for equity, GPT has $1.27bn of available liquidity in cash and undrawn bank facilities, with less than $5m of debt maturing through to December 2021.

GPT said before COVID-19 struck, retail sales had shown positive momentum with monthly combined specialty sales up 3 per cent in January and 4.9 per cent in February on a year-on-year basis.

But the mid-March measures to contain the coronavirus slashed foot traffic and many stores closed. Monthly combined specialty sales plunged by 27.3 per cent and overall centre monthly sales were off by 21.3 per cent.

Supermarkets, by contrast, surged and monthly sales were up 19.7 per cent.

GPT has also deferred commencement of its Rouse Hill retail expansion in Sydney and the Melbourne Central office and retail development, which was to include one of the country’s largest timber towers, “until such time as market conditions are more supportive”.

“We are engaging with our tenants in a proactive and considered way so that we can all emerge from the pandemic in a position to grow our respective businesses,” GPT chief executive Bob Johnston said.

Mirvac warned the full impact of the coronavirus on its operations was yet to come as it reported a slowdown in its residential unit and across its malls.

The company has kept buying residential sites for an eventual recovery but chief executive Susan Lloyd-Hurwitz said the pandemic had transformed the world.

“No sector has been untouched by the health and economic crises that have developed,” she said. “We have been impacted across our business, which is why we withdrew guidance in March, and we have still some way to go before we understand the full extent of the impact.”

Ms Lloyd-Hurwitz said Mirvac was working on its development pipeline, exploring a range of additional opportunities, in order to expedite a recovery process.

Mirvac said it entered the COVID-19 pandemic with a strong balance sheet.