Vicinity Centres remix tenants for success

Chadstone shopping centre renovations will include the new Legoland Discovery Centre. Photo: Joe Armao John Gandel, Chris Kearney, Rob Smith and Angus McNaughton at the launch of Legoland at Chadstone Shopping Centre on October 25, 2016. Photo: Eddie Jim
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Keeping new tenants moving through its mega shopping centres and a large development platform helped Vicinity Centres report a statutory net profit of $908.8 million for the half year to December 30.

After the extensive asset sale and reinvestment program over the past year, the underlying earnings were $376 million or 9.5¢ on a per security basis, down 0.4 per cent.

Vicinity’s chief executive Angus McNaughton said while there have been many retailers facing troubles – 16 in the past few months – it has given the group the opportunity to change the tenants across the portfolio, which includes the mammoth Chadstone in Melbourne’s south-east and Chatswood in Sydney’s upper north shore.

The opening of the first LEGOLAND Discovery Centre in the southern hemisphere in April would also add to the visitor numbers at Chadstone.

He added the changes to the Pharmaceutical Benefits Scheme, which aim to save the federal government $835 million over four four years, have hit local chemists leading to some store closures.

“Some of the closures of retailers in the past few months has helped our team look at opportunities to rework the tenancy mix, such as at Emporium Melbourne, which has proved successful,” Mr McNaughton said.

“Since January 2016, including Dick Smith, we have had a total of 138 stores go into administration across our directly owned portfolio of 7900 tenancies, representing just over 1 per cent of gross lettable area.

“To date, 88 stores have been handed back and we have successfully re-leased over 80 per cent of these, which includes stores handed back within the past few weeks. For the remaining stores expected to be handed back, a number have already been re-leased.”

Over the course of the past six months, total moving annual turnover (MAT) growth was 1.3 per cent, at the end of December, compared to 2.1 per cent at June 30, 2016. Specialty store MAT growth was 2.2 per cent, compared to 3 per cent at June 30 2016. Excluding the impact of Dick Smith store closures in early 2016, specialty store MAT growth was 2.7 per cent.

Vicinity said department stores and discount department stores category sales were down marginally in the period, while at mini majors such as Cotton On and larger H&M stores sales remained robust with 3.3 per cent MAT growth despite the Dick Smith impact.

The expansion of the DFO malls has also proved a bonanza with some stores selling over $430,000 of goods on Boxing Day alone last year. The group recently bought the remaining 25 per cent it did not own of the DFO South Wharf Melbourne.

International retailers remain the strongest performers, taking over space in new centres and are fast replacing department stores as the anchors for a mall.

Expanded food courts and retail services such as beauty and cosmetic retailers and mobile device outlets are also gaining traction as the key tenants in a shopping centre.

After the sale of about $1.4 billion worth of assets, the group bought five new malls and is also working on its $1.4 billion development pipeline which includes completing the Chadstone project, significantly progressing the Mandurah Forum and DFO Perth Airport projects, and commencing $490 million The Glen, Melbourne redevelopment.

For the half year, the group’s distribution was 8.7¢ per security and the full-year guidance for underlying earnings remains unchanged at 18.6 to 18.8¢ per security.