The tidal wave of coronavirus closures swamping listed real estate trusts around the country has so far spared newly-listed large format operator HomeCo, instead boosting foot traffic in its repurposed Masters malls by 30 per cent.
In a rare piece of good news for the retail sector, HomeCo chief executive David Di Pilla said the group’s malls – which include a high proportion of supermarkets and pharmacies – had seen a spike in foot traffic since the outbreak, spurred by shoppers looking for essential items.
Across the portfolio, Mr Di Pilla estimates foot traffic was up 30 per cent on average to Monday this week, although since then foot traffic had softened to normal levels as the lock down hit.
“It appears that consumers are changing their shopping behaviour with shorter dwell times and higher conviction and targeted shopping visits,” he said.
Mr Di Pilla acknowledged dealing with the coronavirus was an “hour-by-hour proposition.” As a result of the uncertainty, HomeCo has withdrawn its full-year earnings, distribution and occupancy guidance.
“Home Consortium remains well capitalised with no debt maturities until FY23 and $146 million in liquidity through cash and undrawn bank facilities and the ability to fully fund its future commitments,” he said.
HomeCo, like other mall owners, will be tested in coming weeks as sharper social distancing restrictions come into force and a raft of retailers close stores, putting 30,000 employees out of work.
Solomon Lew’s Premier Investments (Smiggle, Peter Alexander, Jay Jays, Just Jeans and Portmans), accessories group Lovisa, Accent Group (Athlete’s Foot, Skechers, Timberlands and Platypus) and RAG Group (Tarocash, YD and Connor) are just some of the retailers closing their doors this week.
The onslaught has prompted state governments to introduce measures to prevent landlords evicting both residential and commercial tenants if they can point to the coronavirus crisis as the cause of their financial stress.
This week, NSW passed sweeping legislation which can prohibit landlords from terminating leases and exempt or override any other provisions in any other relevant tenancy or leasing legislation in the state on the recommendation of the Minister if the Parliament is not sitting.
As well, Macquarie Bank analysts say retail malls are facing increasing pressure to offer rental abatements for tenants.
“As a sensitivity, three months of 50 per cent rental abatements for specialties represent a 12 per cent and 11 per cent earnings headwind for Scentre Group and Vicinity Centres, respectively. We note this is before ancillary income, which is typically a variable revenue item as well,” the bank said in a note to clients.
Other listed property managers are not immune to the escalating fallout from COVID-19.
Centuria Capital and Charter Hall Retail REIT have joined the throng with a guidance amendment, but adding they both have solid cash balances and low debt and have confirmed the dividends.
Centuria chief executive John McBain also announced he had withdrawn the offer for the New Zealand-based Augusta Capital. He said Centuria has a long-term view regarding the attractiveness of the New Zealand property funds management sector and it may seek to enter this market as conditions stabilise.
“We are very disappointed about terminating the offer, it is sad on so many levels, but at this stage it was not prudent to continue,” Mr McBain said.
“For Centuria, the mothership of the group, we are not predicting any calamities in relation to rents at this stage. There will be some tenants, such as cafes in our properties that will need help, but I also expect some won’t be deserving, across the whole market, and there will be some simply trying it on.”
Macquarie Equities’ analyst Stuart McLean said about half of Charter Hall Retail REIT’s rental income comes from supermarkets.
“If we assume a 50 per cent reduction in rent for three months on the remaining 50 per cent of income, being the speciality retail tenant, this would be an 8 per cent headwind to fund from operations per security,” Mr McLean said.
“The convenience and local nature of neighbourhood/small sub-regional assets should see them better placed to withstand the current environment compared to larger mall operators. However, these assets are still not immune to changes in discretionary spending.”
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