The strains in retailing caused by the COVID-19 pandemic slamming retail sales in April and May has seen Vicinity Centres, one of the biggest shopping mall operators in the country heading for a $2 billion-plus loss for the final six months of its June 30 financial year in what will be the start of a round of huge write-downs for the sector.
News of the write-downs was contained in a statement to the ASX on Monday from Vicinity which announced a $1.4 billion capital raising.
The company blamed the impending write-downs and need for the new capital on the COVID-19 pandemic and lockdowns which triggered a massive slide in activity and sales at its centres across the country.
Key to the losses was the pandemic’s impact on the values of its shopping malls which Vicinity said have slumped between 11% to 13% or $1.8 billion to $2.1 billion up to the end of May.
The write-down in valuations are preliminary and subject to finalisation and audit, it said.
“Stay at home directives and mandatory closure of some retail stores .. led to a reduction of foot traffic across Vicinity’s portfolio, prompting significant voluntary retail store closures and adversely impacting Vicinity’s income,” the company explained in Monday’s statement to the ASX.
The losses will take the form of impairments or write-downs in the asset values. The company reported December half-year statutory earnings of $243 million, but it is looking at a significantly weaker trading performance in the current six month period.
The company says that the timing around stabilising rental income from tenants remains uncertain and negotiations are continuing with a large number of tenants in relation to short-term variations to their leases.
A growing list of retailers have been monstering landlords, led by the big malls, into rent cuts and new tenancy agreements in the wake of the COVID-19 pandemic.
Vicinity won’t be the first property group to be forced to raise capital because the value of their real estate assets have slid. Rivals Scentre, SCA, Stockland, and Mirvac will be forced to check the value of their shopping mall interests.
The pandemic, lockdowns and the way they have slammed retail sales has seen a sharp fall in the value of the company’s shopping malls in the past two months that has forced the company to raise capital.
The $1.4 billion raising will be in the usual two parts – a fully underwritten institutional placement to raise $1.2 billion which will be followed by a non-underwritten security purchase plan for a further $200 million.
The issues will be at $1.48 a security, around 8% under the $1.61 a security price last Friday at the close. Vicinity securities are down 35% so far in 2020.
Vicinity CEO Grant Kelley justified the decision to axe the June 30 half distribution, saying;
“We are taking decisive action today to strengthen our balance sheet and provide Vicinity with flexibility to respond to the uncertainty caused by COVID-19 and the evolving retail landscape.”
“This equity raising also provides support for the continuation of Vicinity’s investment-grade credit ratings,” he said in the statement to the ASX.
The company paid a 7.95 cents a security final distribution in 2019. It paid an interim distribution of 7.7 cents a security for the six months to December 31 last.
The biggest shareholder, Gandel group (it owns just under 26%) will subscribe for $100 million in the placement. That will see its stake in Vicinity diluted slightly.