Supermarket landlords cash in on virus crisis

“The pace of supermarket shelf stocking doesn’t seem to be able to outpace the rate at which panic-buying is documented on social media, and this will, in turn, result in increased turnover rent payable by anchor tenants – which is a positive,” they wrote in a client note this week.

“The downside, however, is the impact to specialty stores in neighbourhood and sub-regional centres as people adapt their consumption habits in response to the pandemic.”

Even so, listed property trusts Charter Hall Retail REIT and Shopping Centres Australasia, which have large proportions of their portfolios occupied by supermarkets, are expected to be net beneficiaries through increased turnover rent and foot traffic. Both are rated as a “buy” by Jefferies.

“The current sales benefit to supermarkets is not sustainable, however, we do expect this to extend beyond the March quarter,” they wrote.

“Anecdotal feedback on sales growth is consistent with the well-documented supermarket de-stocking, ranging anywhere between 10-30 per cent over the past few weeks.

“This bodes particularly well for landlords who generate turnover rent
from anchor tenants.”

Another boost from the virus crisis for supermarkets and non-discretionary retail landlords may also come from a structural shift from out-of-home to in-home consumption, according to the analysts.

“Typically, in periods of economic weakness, restaurant and takeaway spend tends to fall anyway, and we would expect things to be worse this time round given general concerns surrounding food hygiene,” they wrote.

At the same time, the transactions market is still holding up through demand for supermarket-anchored neighbourhood and subregional malls.