This article is from the Australian Property Journal archive
SHOPPING centre landlord Vicinity has unveiled a $1.8 billion full year loss, impacted by the COVID-19 restrictions and rental waivers to be provided to distressed businesses.
The result comprised funds from operations (FFO) of $520.3 million, down from $689.3 million in FY19 and property valuation loss of $1,717.9 million (FY19: $237.1 million) and an impairment of goodwill of $427.0 million.
This compares to the $346.1 million statutory net profit recorded in FY19.
CEO Grant Kelley said the FY20 FFO was impacted by the rent relief provided to tenants impacted by the coronavirus restrictions, which was partly offset by cost saving initiatives.
Distribution per security was slashed to 7.7 cents for FY20, compared to 15.9 cents in the prior year. The board determined that no distribution would be paid for the six months to 30 June 2020 due to the uncertain impacts of COVID-19.
“FY20 was an extraordinary year. In the first half, we achieved solid financial and operating performance and continued to strengthen the quality of the portfolio. The majority of the second half was significantly impacted by the effects of COVID-19 on our business and our industry.
“Government restrictions introduced to manage the spread of COVID-19 across Australia including ‘stay-at-home’ directives, physical distancing measures, border closures and travel limitations, along with community concern, had a material impact on the retail industry. Further, the mandated closure of specific store categories, resulted in centre visitation across Vicinity’s portfolio falling to a low of 42% of the prior year in early April, prompting additional retailers to voluntarily close their stores on a temporary basis,” he added.
Kelley said property remains one of the few industries that is providing waivers, not only deferrals, of rent to impacted businesses, notwithstanding legal obligations under leases.
“We have been negotiating in good faith with both our SME and non-SME retailers who have been impacted by COVID-19 to ‘share the burden’ and support them through these difficult times while balancing the need to secure future cash flows for Vicinity.
“Of the short-term lease variations agreed to date, 86% of the rent relief has been in the form of waivers and 14% deferrals. Where lease extensions have been agreed as part of negotiations, leases have been extended by 17 months on average,” he continued.
Moody’s Investors Service’s vice president Saranga Ranasinghe said Vicinity’s FY20 results highlight the challenging environment for retail landlords.
“The REIT collected only 49% of rent for the June quarter as at August 10, while funds from operations declined by a substantial 46% in the second half from the first half. Reflecting weaker prospects for its retail assets, the REIT also reported a 11.4% devaluation for its portfolio.
“With around half of Vicinity’s assets located in Victoria, we expect the government-mandated closure of all discretionary retail in the state will further weaken earnings in fiscal 2021. Moreover, the REIT’s flagship assets in tourist and CBD locations remain affected by ongoing travel restrictions and remote working arrangements.
“Nevertheless, operating performance has made a good recovery outside the states of Victoria and New South Wales, where coronavirus infection rates are low, with customer visitation recovering close to pre-COVID levels.
“Vicinity’s balance sheet is strong following its recent AUD1.2 billion equity raising, as well as liquidity preservation measures such as cancelling its June 2020 distribution payment and reducing or deferring capital and operating expenditure. The REIT also has an excellent liquidity profile with limited near-term debt maturities, and this provides a good financial buffer against weaker cash flows and further downside risk,” Ranasinghe said.
Government mandated and voluntary temporary closures of stores resulted in the store open rate falling to a low of 42% in early April 2020, during the initial peak of the COVID-19 pandemic, and this has affected the comparability of some sales reporting figures. Total moving annual turnover (MAT) growth4 was -7.0% (FY19: +2.7%) and specialty and mini majors MAT growth4 was -10.3% (FY19: +3.1%). Specialty store productivity was $9,770 (FY19: $11,083) and portfolio occupancy was 98.6% (June 2019: 99.5%).
Kelley said Vicinity continues to work through rent relief negotiations with affected tenants to reach mutually-beneficial outcomes, and are taking this time to forge stronger, longer-term relationships with like-minded retailers.
“We are also advancing the planning for future mixed-use projects so we can be prepared to develop in a stronger post-COVID-19 market at the appropriate time.
“We have re-prioritised our extensive development pipeline to preserve cash flow until economic conditions improve. This has resulted in the deferral of some projects, including the major redevelopment of Chatswood Chase Sydney. However, we are continuing to progress other opportunities without large near-term financial commitment, including the planning of major mixed-use developments,”
Despite the challenges, Kelley said Vicinity is well positioned.
“While the pandemic impacts continue to be challenging, particularly in Victoria, we have seen that consumers want to return to shopping centres quickly when COVID-19 restrictions ease.
“We remain committed to our strategy of market-leading destinations, which we believe will continue to deliver returns for investors over the medium to long term, and offer an attractive platform for our retailers and our consumers,”
Kelley said Vicinity is not in a position at present to provide earnings and distribution guidance for FY21 due to the uncertainty.
