Vicinity Centres portfolio valuation dips amid retail chill

Retail sector weakness has weighed on the books of joint Chadstone mall landlord Vicinity.

Vicinity Centres CEO Grant Kelley at the Chadstone shopping centre. David Geraghty/The Australian

Listed mall owner Vicinity Centres has been hit by the softening retail environment with its overall portfolio dropping by a 1.3 per cent as its Western Australian centres dropped in value and properties held for development also slid.

But the group (VCX) is shifting its emphasis towards its flagship portfolio, which includes a half share in Melbourne landmark Chadstone Shopping Centre alongside billionaire John Gandel, with these top centres showing a valuation jump of 1.2 per cent.

“Vicinity’s flagship portfolio — Chadstone, Premium CBD assets and DFO (Outlet) centres — has continued to outperform, demonstrating resilience and reinforcing our strategy to focus on market-leading destinations,” chief executive Grant Kelley said.

Vicinity said it had released the estimated valuations ahead of a potential debt capital market raising, but it is unlikely to tap equity markets, analysts said.

“A potential bond issuance will extend our weighted average debt maturity, decrease our weighting to bank debt and, with the recent material fall in interest rates, enable us to take advantage of lower borrowing costs,” Mr Kelley said.

Mr Kelley said Chadstone’s strong performance contributed to its valuation gain and it had hit $2.2bn in annual retail sales and a new hotel was slated to open in November.

Chadstone had strong sales growth contributing to a forecast 1.6 per cent valuation increase and the group’s DFO centres are also expected to record solid valuation growth.

Customers pose with shopping bags at the Chadstone shopping centre in Melbourne. Picture Andrew Tauber

The group’s main markets, Victoria and NSW, had positive valuation trends and centres in the heart of Sydney, including the Queen Victoria Building, had also benefited re-leasing strategies after Vicinity took an interest in them alongside GIC last year.

All up, Vicinity said 35 of its 62 directly-owned retail properties — 57 per cent by value — were in the final stages of being independently valued and the remaining properties would be internally valued.

The overall fall of 1.3 per cent amounts to a $202m fall for the half while the flagship portfolio’s lift equates to $86m and the capitalisation rates remained unchanged for key assets.

Mr Kelley blamed “challenging” operating conditions in WA, compounded by an increased competitive environment, for lower income forecasts and some softening in capitalisation rates.

The valuation side in WA was 6.7 per cent and contributed to more than half of Vicinity’s estimated portfolio valuation loss. But Mr Kelley is confident that trading conditions would improve on the back of continued investment in resources and infrastructure.

Even good centres like Chatswood Chase Sydney, Bankstown Central and The Myer Centre Brisbane were being hit as they struck short-term leases ahead of planned redevelopments.

Mr Kelley said Vicinity would stick to its plans to invest in its flagship portfolio, weighting towards east coast metropolitan areas and undertaking retail and mixed-use development of key centres.