Vicinity Centres lifts as consumers return to suburban shopping centres

The shopping centre landlord has shrugged off the Omicron wave and says confidence is rising as shoppers surge back into suburban malls.

Vicinity centres CEO Grant Kelley says shoppers are getting back into malls.

Shopping centre owner Vicinity Centres is riding the reopening trade with shoppers surging back into suburban malls and investors embracing its potential foray into funds management.

Vicinity has made an opportunistic play to run about $6bn worth of centres which are part of the Collimate Capital funds empire, seeking to take on the management of two major shopping centre vehicles.

The Grant Kelley-led company is putting itself forward as an interloper as the sale of the local Collimate operations to rival Dexus for $250m proceeds, although the purchaser is confident about its prospects of holding on to the funds.

On the ground, malls are coming back into vogue as shoppers are out in force again, spending up ahead of interest rate rises and not slowing despite the uncertainty associated with the federal election.

“The momentum of our recovery and the continued resilience of the retail sector enable us to reaffirm our earnings guidance for fiscal 2022,“ Mr Kelley said. Vicinity shares added 7.5c, or 4.1 per cent to close at $1.91 as he gave a bullish outlook.

“While the macroeconomic environment continues to provide favourable tailwinds for our recovery, we are mindful of inflationary pressures and the rising interest rate environment. That said, we remain well positioned, supported by the structure of our leases, and noting also that moderate inflation typically supports sales and margin growth for retailers.“

Vicinity on Thursday unveiled a healthy March quarter and confirmed its guidance for this financial year with the recovery now picking up momentum.

“During the March quarter, we continued to build on the operational and financial performance delivered in the first half of fiscal 2022. Occupancy remained stable, cash collections improved and retailer confidence rebounded in late February and March,” Mr Kelley said.

“The quarterly results were delivered despite challenging trading conditions at times during the quarter, with the spread of Omicron, catastrophic floods in NSW and Queensland and growing geopolitical instability,” Mr Kelley said.

Leasing activity in shopping centres accelerated in late February and March, following some moderation in January and early February due to the impacts of Omicron

Across the company’s centres occupancy remained stable at 98.2 per cent. Vicinity reported improved leasing spreads, which it expects to support future growth, and they are now at -5.9 per cent against -6.4 per cent in the first half of 2022.

The company has collected 89 per cent of gross rental billings collected for the last quarter and cash collection is expected to increase following expiration of the Morrison leasing code in NSW and Victoria in mid-March.

Mr Kelley welcomed the expiry of the codes in NSW in March, given that both states had remained open and trading since last October.

“Retail sales have proven resilient to Covid-related disruptions, giving retailers in our centres confidence to pay current and any overdue rent,” he said.

Despite the spread of Omicron, portfolio visitation averaged 76 per cent of pre-Covid levels in the March quarter, and excluding CBDs, visitation reached 85 per cent of pre-pandemic levels. This has lifted to 85 per cent for the full portfolio and 91 per cent excluding the still slow city centres in April, as consumers are increasingly confident to return to normal activities.

Sales across the luxury category remain strong, but Vicinity warned that some smaller retailers, particularly those without an omni channel presence and in CBDs, continue to lag the portfolio.

Vicinity is also stepping up its mixed-use development pipeline and will reveal more about its projects in June.