Shopping centres prepare for more lockdowns

Vicinity centres CEO Grant Kelley. Picture: David Geraghty, The Australian.
Vicinity centres CEO Grant Kelley. Picture: David Geraghty, The Australian.

Shopping centres have become the major focus of efforts to keep essential services open while also stopping the spread of the coronavirus at a time when their operations are on the brink.

Retail landlords are stepping up preparations for further lockdowns flagged by state premiers as customers flock to supermarkets and pharmacies in the wake of extended trading hours being announced.

But they are being forced to deal with widespread calls for rental relief that could be extended into the recovery, with fears a more permanent shift towards buying online could be locked in.

The country’s biggest retail landlords, the Scentre and Vicinity Centres, have been hardest hit in the stockmarket rout as their income streams drop off and their asset values erode, putting pressure on lending covenants, which could prompt rescue raisings.

Owners are struggling with the weight of demand for rental cuts coming from almost all but pharmacy and supermarket tenants.

But they have stayed open to provide essentials, especially grocery stores, food markets , pharmacies, and medical centres.

Cinemas, gyms and indoor sporting venues as well as pubs, entertainment venues have already closed. Now beauty and tanning salons, massage, tattoo parlours and spas are being shut. Food courts have also dramatically switched to takeaway while click and collect services are still running.

Vicinity chief executive Grant Kelley says physical distancing is a key defence against the spread of COVID-19. “We know these are uncertain times which call on swift, decisive measures to keep the community safe and we continue to work with all levels of government to ensure the safety and wellbeing of our customers, retailers, teams and the communities which we serve,” he says.

The closure of jewellery chain Michael Hill rattled the sector but landlords are hoping shutdowns are limited to stores specialising in discretionary spending.

Senior leasing sources say landlords are waiting to see what government relief will be provided and for updated sales figures from retailers.

“They will come to the party and help rescue them as they don’t have a business without them,” one leasing executive told The Australian. “Everyone will find out as rents are going to be due in a week’s time.”

SCA Property Group is hoping its high number of supermarket tenants will be able to partially offset lost rental income induced by coronavirus shutdowns to non- essential businesses.

SCA has withdrawn its 2020 financial year earnings guidance, noting the COVID-19 pandemic is placing shopping centre rents under a shroud of uncertainty.

However, a robust number of supermarket anchor stores in all but one of its 85 shopping malls could be a potential antidote to the increased headwinds to earnings if smaller shops close.

“The convenience and local nature of neighbourhood/small sub-regional assets should see SCA better placed to withstand the current environment compared to larger mall operators,” Macquarie analysts say. “However, these assets are still not immune to changes in discretionary spending. There is also downside risk to closure of shopping centres … at some stage.”

– with Gerard Cockburn

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