Vicinity chops Chadstone value, warns distribution at lower end

Times continue to be tough for shopping centres, with mall landlord Vicinity reducing the value of a key Victorian mall.

Melbourne's giant shopping mall Chadstone empty during a recent lockdown. Picture: Chris Lacy

Tough times continue in shopping centres, with the listed Vicinity Centres saying its full-year distribution would be at the lower end of distribution policy range and the group imposing a further cut to the value of Melbourne’s Chadstone shopping centre.

The value of the company’s half stake in Chadstone, which it owns alongside billionaire John Gandel, was cut by $64.3m, or 2.1 per cent, to $3.02bn.

But the biggest hit was taken on the company’s city centres which were off by 3.1 per cent to $1.98bn as lockdowns and work-from-home hit their performance.

The company’s malls have been in the firing line as they are concentrated in Victoria, which has been subject to multiple lockdowns and new property taxes.

The Grant Kelley-led Vicinity said that it would pay a full year distribution of 10c which would be at lower end of its range of 95 per cent to 100 per cent of adjusted funds from operations.

Vicinity will pay a final distribution per security of 6.6c, comprising 4.1c for underlying operations for the June half and 2.5 cents attributable to several one-off items recognised over the full year.

These one-off items relate to a decrease in fiscal 2020 rental waivers and provisions, elevated surrender payments, temporarily reduced interest costs in the first half of fiscal 2021 from an interest rate swap restructure and short term cost savings as a result of the Covid-19 pandemic.

Vicinity announced a preliminary net valuation decline of 1.2 per cent or $164m over the last six months for its 60 directly owned retail properties. Independent valuations were undertaken for 39 properties, with the remainder valued internally.

The valuations were hit by the Victorian government’s proposed land tax and stamp duty increases, which take effect next financial year, and the continued impact of Covid-19 on CBD centres, notably the slower than expected return of workers to CBD office locations as well as a significant reduction in interstate and international tourism.

Vicinity also cited softening in market rents, notably across major regional centres. But the mall owner has seen a strengthening in discount factory outlet valuations reflecting trading performance and leasing outcomes and it said there was resilience in neighbourhood centres given their weighting toward non-discretionary and essential retail.

The shopping centre owner’s units had slipped by 1.5c to $1.64 in early ASX trade.

Vicinity also noted rating action by Moody’s Investor Services this month, which saw its A2 issuer rating affirmed and Vicinity’s outlook changed from negative to stable.

Moody’s also affirmed the A2 backed senior unsecured ratings and (P)A2 backed senior unsecured medium term note ratings for Vicinity.

Vicinity is rated A by Standard & Poor’s and its rating outlook was changed from negative to stable on June 2.