Stock Sell-Off Sees Scentre,Vicinity Withdraw Guidance

ASX-listed regional mall landlords Vicinity Centres and rival shopping mall giant, Scentre Group have withdrawn their earnings and distribution guidance as coronavirus creates increasingly uncertain retail trading and operating environments.

In the wake of the aggressive sell-off of property stocks exposed to the impact of the coronavirus, JPMorgan analysts Richard Jones, Ben Brayshaw and Krzysztof Kaczmarek forecast an earnings drop of between 25 and 40 per cent for both ASX-listed companies.

“We have made material changes to forecast rent including assuming all shopping centres are non-income producing for two months—the supermarkets and essential retailers continue to trade but the bulk of the specialists close,” the analysts wrote in a client briefing note.

Scentre Group chief executive Peter Allen assured industry last week that its Westfield centres were excluded from the government’s restrictions on non-essential, organised mass gatherings.

“All our centres remain open for trade and we acknowledge their importance in delivering goods and services to the community as well as supporting employment and economic activity across the nation,” Allen said.

However, with Sunday's announcement of a more comprehensive shutdown of non-essential services in NSW, Victoria and Canberra - along with the closure of some state borders - uncertainty remains about the duration and impact of the pandemic on shopping centre operations.

Scentre had performed in line with expectations during the early part of 2020, according to an ASX announcement issued on Friday, “however, in light of the COVID-19 pandemic and volatility in markets globally, the group is suspending the outlook for 2020 that was previously announced”.

Days earlier, listed developer and operator Uniball-Rodamco-Westfield, which owns and operates 90 shopping centres across the globe, issued a statement advising that government-ordered closures of “non-essential” stores in its overseas markets—including France, Spain, Poland, Austria, the Czech Republic and Slovakia—were impacting the group’s operations.

“The group’s other shopping centres continue to trade as normal for now, albeit with reduced footfall, although URW expects other governments may adopt similar measures in due course.”

Vicinity Centres—Australia’s second-largest listed mall landlord—announced it is withdrawing its FY20 earnings and distribution guidance following the escalation in uncertainty surrounding the impact of COVID-19 on Vicinity’s operations.

“Since announcing our interim results in mid-February, we have seen a further deterioration in the retail trading and operating environment, with increasing uncertainty around the impacts of COVID-19,” Vicinity chief executive Grant Kelley said.

JPMorgan’s analysts noted that a lack of force majeure clauses in leases meant that technically speaking, in the event of the forced closure of shopping centres by the federal government, tenants would still be liable to pay the rent.

“In reality, we believe there will have to be some flexibility provided by the landlord, and there is the possibility of the government standing behind the retail industry in some form.”

The analysts added that their revised forecasts factored in the provision of rent relief of 20 per cent across the board, and rents re-based in 2021 at 10 per cent lower than 2019.

“We believe our assumptions are bearish [yet] reflective of the potential new world post the global coronavirus crisis (GCC).”

Property developer Mirvac, online residential listing site REA Group, property fund GPT and hotel operator Redcape Hotel Group have also announced the withdrawal of their full-year financial outlook amid economic uncertainty in response to the coronavirus.