Vicinity Centres has slashed $1.79 billion off the value of its 62-centre portfolio, as it continues to assess the full impact of the Covid-19 pandemic on retail operators.
Having warned investors of significant declines when it undertook a $1.4 billion capital raising last month, the country’s second-largest retail landlord said values have dropped across its portfolio by 11.3 per cent for the June 30 half year.
The ASX-listed mall landlord, which manages and part-owns top-tier shopping centres predominantly across Victoria and Melbourne, saw an 8.8 per cent loss across its blue chip assets at the top end of its portfolio.
Vicinity said vacancy, downtime, leasing capital, and lowering expectations for sales and market rental growth were all significant drivers for the valuation decline over the six-month period.
The main losses were across regional centres which plunged by 15.6 per cent, with mid-sized sub-regionals off by 10.5 per cent and even relatively resilient neighbourhood centres down 12.3 per cent.
Values plummeted as many tenants are yet to agree on rental discounts 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 chief executive Grant Kelley said a portion of the drop in values was from the rent waivers by the group as part of the government’s stimulus packages.
“In the absence of suitable transaction evidence since the Covid-19 outbreak, valuers have addressed market conditions by closely focusing on the underlying cashflows,” Kelley said.
“Key assumptions include significantly increasing short to medium term allowances such as vacancy, downtime, leasing capital, and lowering expectations for sales and market rental growth.
“It is important to note that retail property is one of the few industries where partial rent waivers, not just rent deferrals, are being offered to impacted businesses, notwithstanding legal obligations under leases.”
At the height of the lockdown in April, foot traffic in Vicinity’s malls fell by 50 per cent and only 42 per cent of stores were open.
Most re-opened in July, but there have been a number of chains that have shut down some stores and flagged future closures, with visitation across the portfolio currently sitting at 68 per cent of the previous year level.
“Excluding Victoria, portfolio customer visitation increases to 80 per cent, with 95 per cent of stores trading,” Kelley said.
“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.”
Rival shopping mall giant Scentre, which owns and operates the $56 billion portfolio of Westfield malls, is yet to provide valuations to market.
Although it has a lower exposure to Victoria, its city malls and tourist-focused retailers are suffering.
ASX-listed Scentre, led by Peter Allen, has since trimmed operating expenses at its malls by 25 per cent and the board and senior executives have taken a 20 per cent cut to their base pay.
The timeline for its redevelopments is also under review.
Stockland, Mirvac and GPT have already taken write-downs on their centres and parked new projects.