Vicinity’s CBD and VIC Mall a Drag on Performance

6 November 2020

Vicinity provided a quarterly update to the market today, confirming that the CBD malls and those in Victoria have been badly affected by the restricted lock down periods.

For Vicinity, excluding Victorian and CBD centres, during the September 2020 quarter, centre visitation averaged 94% of the prior year level, while sales were up 1.1% versus the corresponding quarter for the prior year.

Rental collections are also well down with just 56% of gross rental billings across the portfolio collected during the quarter, or 76% excluding Victorian and CBD centres.

Yesterday SCentre reported better results with 85% of rent collected during the September quarter.

Mr Grant Kelley, CEO and Managing Director, said: “We are very pleased to have our Melbourne retailers re-open over the past week and have seen centre visitation return to 79% of the prior year level across our Victorian centres. This includes our CBD-located centres, Emporium Melbourne and DFO South Wharf, with visitation at 48% and 64% of last year respectively.

This follows a 12-week period where 83% of our Victorian tenancies were closed due to government directives.

“Australian in-store retail activity has been influenced by three trends in the quarter. Firstly, until recently in Melbourne, only essential retailers were permitted to trade given Stage 4 restrictions which commenced on 6 August 2020. For Vicinity, this resulted in 17% of our Victorian stores remaining open during that period. Secondly, CBD locations nationally continue to be impacted by many city employees working from home and by travel restrictions. Thirdly, outside of these markets and where COVID-19 concerns are lower, retail activity has recovered to levels which approximate or in some cases exceed the prior year.

Vicinity’s portfolio sales reflected the national trends. Total portfolio MAT to 30 September 2020 was -15.2% below the prior year. Excluding Victorian and CBD centres which continue to be most impacted by the pandemic, portfolio MAT showed a modest decline of -1.7%. This reflects a rebound in the September 2020 quarterly sales which were up 1.1% versus the corresponding quarter of the prior year, compared to a -14.7% decline for the June 2020 quarter.

Mr Kelley said: “We continue to negotiate short-term lease variations for our impacted retailers in the form of rental waivers and deferrals. Our focus is on ensuring a healthy retail environment through and post the
pandemic, securing income and if appropriate, extending lease tenure.”

The drop in income and activity has seen Vicinity pull back from it development program. The Group have no live developments under way at present but are continuing to advance planning approvals. The remaining works on the $63 million Ellenbrook Central expansion in Western Australia was completed during the quarter which included the introduction of a K Mart.

Mr Kelley said: “We continue to minimise non-essential capital expenditure, whilst also proactively progressing development planning in order to be ready to commence projects when market conditions permit. This includes the lodgement of development applications for major town centre mixed-use developments at Box Hill and Bankstown as part of long-term masterplans that were announced in May and July 2020 respectively.”

In July 2020, Vicinity received council approval for five projects at Chadstone, Victoria including a new ninestorey commercial office building, more than 1,400 additional car parks along with upgrades to enhance
select retail and dining precincts. These projects are expected to be completed over a five-year period.

Vicinity received council approval for mixed-use plans at Sunshine Marketplace, Victoria in September 2020. Over time, there is potential to add office space, serviced apartments, an entertainment and dining precinct, and diverse residential accommodation to this 12-hectare site in Melbourne’s growing western suburbs.

At Bayside, Victoria, planning approval was received in October 2020 for a new eight-storey, 15,000 sqm commercial office building with a ground floor retail precinct and basement carpark.

Mr Kelley said: “We are confident that visitation across our Melbourne centres will continue to rebound, repeating the trend observed in other markets in Australia where the virus has been largely contained. When combined with borders re-opening and the return of domestic tourism, along with a steady increase in workers returning to CBD offices, this should support improved retail conditions across Australia.

Due to current uncertain circumstances, Vicinity are still not able to provide FY21 earnings guidance. However, they advised that assuming no material deterioration in existing conditions, the Group intends to pay a distribution for the six months to 31 December 2020.

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