CORONAVIRUS COVID-19 PANDEMICREAL ESTATE INVESTMENT TRUSTS & FUNDS

CBD retail values take a smashing

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ASX-listed shopping centres landlord Vicinity has taken a further $164 million revaluation hit to its $13.5 billion malls portfolio, as its CBD centres continued to suffer from the absence of workers and tourists.

It also blamed the Victorian government’s recently announced increase on land tax and stamp duty that will take effect from July. Softening market rents, particularly across major regional centres, played their part as well in the 1.2% drop.

Vicinity’s 50% share in Melbourne’s Chadstone fell 2.1%, or $64.3 million. Co-owned with the Gandel family, the $3.016 billion mall retained its sharp cap rate of 3.88%.

Its seven CBD centres, including the Queen Victoria Building in Sydney and Emporium in Melbourne, lost 3.1%, or $63.9 million, coming down to $1.976 billion.

Regional centres lost 1.3%, or $53.2 million, while sub-regionals had 0.5% shaved off, coming down $13.9 million.

More positively, DFO valuations reflected more healthy trading performances and leasing outcomes, up 1.6%, or $27.4 million, while neighbourhood centres continue to show resilience given their weighting towards non-discretionary and essential retail. They grew 2.2%, or $4.4 million.

The total portfolio’s cap rate remained at 5.49%.

Vicinity posted $394.1 million loss over the first half, after its portfolio lost a chunk of its value over two revaluations during the pandemic. It had $1.8 billion wiped off its portfolio in the first six months of 2020, representing 11.3%, and another $570 million taken out earlier this year.

Retail property transactions have lifted to their highest level in almost three years as investors rebalance their portfolio.

Vicinity also announced yesterday a final distribution of 6.6c per security, up from the 3.4c in the first half. It saw a drop in rental waivers and provisions and received more surrender payments, while it also benefited from short term cost savings as a result of the pandemic, and temporarily reduced interest costs in the first half of the financial year from an interest rate swap restructure.

The full-year distribution will of 10.0c per security is expected to be towards the lower end of Vicinity’s distribution policy range of 95% to 100% of adjusted funds from operations.

Moody’s Investor Services earlier this month, which saw Vicinity’s A2 issuer rating affirmed and Vicinity’s outlook changed from “negative” to “stable”.

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