ASX-listed retail property group Vicinity Centres has revealed its substantial shopping-focused property portfolio has taken a financial hit.
Australia’s second largest listed mall landlord, led by Grant Kelley, estimates the value of its 66 centre-portfolio fell 1.3 per cent, or $202 million, in the six months to June this year.
Valuation declines in Western Australia contributed to more than half of Vicinity's estimated portfolio valuation loss, with a $130 million or 6.7 per cent decline.
“Current challenging operating conditions in Western Australia, compounded by an increased competitive environment, has resulted in lower income forecasts and some softening in capitalisation rates for our assets in this state,” Vicinity Centres chief executive Grant Kelley said.
The softening retail environment environment, due in part to a growing market share in spending taken by e-commerce has continued to weigh on shopping centre incomes, with Vicinity pointing to specific markets for the downtick.
To counteract this, Vicinity has been refining its portfolio to focus on larger, destination centres by divesting smaller malls.
So far Vicinity has sold down $2.7 billion of retail assets and has another $1.2 billion poised for divestment.
The fund manager’s $5 billion worth of regional and sub-regional shopping centres recorded the biggest drop, declining by 4.5 per cent in value, or $235 million. The group’s sub-regional centres saw a downward shift of $47 million or 1.5 per cent.
Vicinity said it had released estimated valuations ahead of a potential debt capital market raising.
“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.”
Vicinity's trophy assets, including a half stake in the country's biggest mall Chadstone shopping centre, alongside billionaire John Gandel, in Melbourne's south-east and The Strand Arcade in Sydney, rose in value.
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.
Vicinity's flagship portfolio lifted to $86 million and the capitalisation rates remained unchanged for key assets.
“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,” Kelley said.
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.
In February, Vicinity devalued its $15.8 billion portfolio for the first time since it listed in 2011.
The retail landlord also formed a $1 billion wholesale fund with Singapore's Keppel Capital in order to forge a new network of potential investors, particularly from Asia.