Vicinity Centres praise Victorian lockdowns

Vicinity Centres, the co-owner of Melbourne’s landmark Chadstone shopping centre, has praised the Victorian government’s handling of the coronavirus pandemic, calling the public health response “world-leading”.

Vicinity chief executive Grant Kelley said evolution of the response by governments across Australia had led to an “enormous” bump in consumer confidence, which had driven visits to its suburban centres and malls outside Victoria back to about 90 per cent of pre-crisis levels by the end of January.

“So there is a recovery of stores occurring, which we are grateful to public health advisers and government for engineering, which they clearly have,” Mr Kelley said.

On a call with investors as the company delivered a $394.1m first-half loss, he thanked the Andrews government for its handling of the state’s latest five-day lockdown.

“I always say to people who complain about the lockdown; it’s cause and effect … [opponents] are ignoring the very fundamental point that what’s causing that from the public health domain is probably world leading health advice, and then governments moving swiftly and then Australians, frankly, everyone’s doing their bit,” Mr Kelley said.

Most of Vicinity’s Melbourne retailers were also mandated to close in the city’s lockdowns last year and its CBD centres are still being hit by the slow return of office workers and limited tourism due to border closures. But Vicinity had two consecutive quarters of positive sales growth outside CBDs and Victoria.

Vicinity said it was on the path to recovery and wrote back $56m of provisions made for the coronavirus pandemic. But all up the company provided $215m of rent relief in 2020 split between $181m of abatements and $34m of deferrals.

Mr Kelley said shopping centres had made an “enormous” sacrifice for the health of smaller retailers while banks had not provided relief. He remains optimistic about malls, saying online sales peaked at 18 per cent of retailing early in the pandemic and had since fallen into the mid teens.

Vicinity was “embracing” a shift by retailers to omni-channel strategies and its properties could also serve as fulfilment centres. “We believe that between 80 per cent and 85 per cent of shopping within a three to five-year period, will still have a physical basis,” Mr Kelley said.

Vicinity’s $394.1m first half loss was mainly due to it being hit by a $572.4m of writedowns on its mall portfolio as the coronavirus pandemic wreaked havoc on values.

The company generated Funds From Operations of $267.1m but was swamped by the cuts to its portfolio and the continued effects of COVID-19, particularly rental waivers and provisions for unpaid rent.

Vicinity declared a distribution per security of 3.4c for the half, less than half the 7.7c paid in the first half last year, saying the reduced distribution payout ratio of 62.4 per cent was conservatively positioned in light of continued uncertainty around full-year earnings and COVID-19 impacts.

Mr Kelley said that although the pandemic led to significant challenges, the company was well-positioned to benefit from improving economic conditions, with consumer and business confidence approximating pre-pandemic levels, fuelled by fiscal stimulus measures and record low interest rates.

“While the retail industry is showing continuing signs of recovery, we recognise that uncertainty remains, with the potential for further COVID-19 restrictions, the unwinding of temporary government support measures, and a prolonged recovery in CBDs on the eastern seaboard,” he said.

Vicinity did not provide full year earnings guidance but is targeting a distribution payout ratio of 95 per cent to 100 per cent of Adjusted Funds From Operations for the full year.

Vicinity received JobKeeper subsidies worth $12.6m to last September and did not pay bonuses.

Jefferies analysts Andrew Dodds and Sholto Maconochie said Vicinity’s result was weak despite being above expectations, driven largely by better rental income and assistance from JobKeeper.

They said the impact of COVID-19 was still severe, as 51 per cent of Vicinity’s portfolio is in Victoria but said that rent collection of 72 per cent was likely to be a sector worst.

Vicinity shares lost 1.6 per cent on Wednesday to $1.58.

This article originally appeared on www.theaustralian.com.au/property.