Vicinity Centres says value of property portfolio falls 11.3pc

Mall landlord Vicinity says the value of its property portfolio fell 11.3pc in six months as COVID-19 kept shoppers away.

Vicinity CEO Grant Kelley at Chadstone shopping centre. Picture: David Geraghty

The pain in the retail sector has been put on display, as Chadstone co-owner Vicinity Centres slashes the value of its entire portfolio by 11.3 percent as it grapples with the impact of the coronavirus pandemic on shoppers’ willingness to visit malls.

The company, whose portfolio is heavily weighted towards Victoria and Melbourne, has been harder hit than rival Scentre Group, which owns the Australian Westfield empire, and it could be hurt more if Victorian lockdowns drag out.

Values have plunged as many tenants are yet to agree rental deals for the last lockdown and the longer term implications of a drawn-out recession, including higher mall vacancies and lower rents, are now slamming retail landlords.

Vicinity said the portfolio net valuation decline of 11.3 percent reflected the impact of COVID-19 and the evolving retail landscape. It recorded a loss on its flagship portfolio, including Chadstone, premium CBD and DFO outlet centres, of 8.8 percent.

Vicinity undertook independent valuations of its 60 directly-owned retail properties which it said resulted in the overall portfolio decline of $1.79bn.

This was at the lower end of the range of a decline of 11-13 per cent it announced last month as it raised $1.2bn.

Vicinity chief executive Grant Kelley acknowledged the overall fall but said the results highlighted the resilience of flagship malls, and affirmed the landlord’s strategy and weighting towards metropolitan markets with strong long-term fundamentals.

With no large shopping centre deals to speak of since the COVID-19 outbreak, valuers had addressed market conditions by closely focusing on the underlying cashflows, and they had allowed for vacancy, downtime, leasing capital, and lowering expectations for sales and market rental growth over the next three years.

Mr Kelley said a portion of the valuation decline in the period related to assistance in the form of rent waivers provided by Vicinity to retailers hurt by the COVID-19 pandemic.

There was a 21 basis point softening in the weighted average capitalisation rate of the portfolio to 5.47 per cent.

Mr Kelley said that aside from Victoria, which has had an increase in COVID-19 cases and recently reinstated stage three restrictions across metropolitan Melbourne, conditions across other Australian states continue to improve.

“For many of our centres, particularly those that are less reliant on office workers or tourists, customer visitation has returned to, or is close to, pre COVID-19 levels,” he said.

Visitation across the portfolio is 68 per cent of the prior year level, with 83 per cent of stores trading. Excluding Victoria, portfolio customer visitation increases to 80 per cent, with 95 per cent of stores trading.

But the pandemic looms over the mall sector and further valuation falls are expected in this half.

“This remains a highly uncertain and evolving environment, as demonstrated by current circumstances in Victoria. Any reductions in discretionary retail spending and lower retail activity may continue to have an adverse impact on the valuation of Vicinity’s assets,” Mr Kelley said.