“Challenging”: Vicinity Centres Confirm Retail Recession

By Glenn Dyer | More Articles by Glenn Dyer

The decision by shopping centre operator, Vicinity to flog off more of its malls isn’t surprising given the sale late last year of 11 malls had no real impact on its weak returns which plunged more than 70% in the year to June and saw it cut its final distribution.

Vicinity Centres’ full-year profit slumped 72% to $346.1 million as the shopping mall owner warned that the outlook for retailers appeared weak.

The owner of 62 shopping centres said total revenue for the 12 months to June 30 dipped 3.6% to $1.28 billion and it lowered its final payout from 8.2 cents to 7.95 cents, unfranked per security.

“The retail environment is expected to remain challenging in FY20, although economic stimulus including lower interest rates and income tax cuts may benefit retail spending,” the company said in a release.

The Vicinity results confirm that retailing is in a recession as the monthly survey from the National Australia Bank has noted twice this year (the first was in May, the second this week in the July survey when it said conditions in retailing were worsening).

While Monday’s solid 2018-19 performance from electronic and white goods retailer, JB Hi-Fi might bely that claim as the shares hit a couple of all-time highs in post-release trading, the reality was to be found in management’s forecast of 2019-20 sales growth of just 2.1%.

That will be almost half the 3.5% growth in sales reported for 2018-19.

And for shopping centre owners, there is a boom in gloom as malls are sold off wholly or partially.

Sector leader, Scentre has sold half its Burwood mall in Sydney for $575 million and sold office and apartment towers associated with a Sydney CBD centre for $1.5 billion. Around $500 million of those funds will be redirected back into an expansion campaign at its Doncaster centre in Melbourne.

There is now around $10 billion worth of shopping malls for sale in Australia and lack of investor interest has forced one of the country’s largest retail landlords Vicinity Centres to scrap its plans to sell 12 underperforming shopping centres.

It sold 11 centres late last year for $631 million, but now big fund managers and offshore investors are no longer as interested. A further single centre was sold for $39 million, raising $670 million in all.

Chief executive Grant Kelley said subdued investor sentiment towards retail funds globally had forced Vicinity to scrap the centre sales, seven of which were to be spun off in the VKF wholesale fund.

The surge of online shopping and weakness bricks and mortar retailers is eating into the valuations of shopping centres, particularly for medium-sized malls or what the industry calls regional or sub-regional centres. (David Jones $427 million write-down by parent – Woolworths of South Africa – announced in July as another good indicator).

Funds from operations – the figure used to calculate distributions – fell 2.7% to $689.3 million over the period, hence the reduction in the final distribution and a lowering of the full-year payout to 15.9 cents security from 16.3 cents.

Vicinity securities fell 2% to $2.48, the lowest since early July.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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