The Chadstone shopping centre owner Vicinity Centres (ASX: VCX) share price will be on watch today after the business provided a Q1 trading update.
Currently, the Vicinity Centres share price is down 0.73% to $1.76.
VIC, NSW lockdowns dampen results
Over the first quarter from 1 July to 30 September, Vicinity Centres was hit hard by the latest round of pandemic restrictions in Victoria (VIC) and New South Wales (NSW) where 52% and 20% of its portfolio is respectively located.
VIC recorded visitation of just 19%, while NSW achieved 50%.
Notwithstanding low foot traffic, total retail sales across the two states dropped just 25.7%.
“…many retailers were better equipped to adapt their store networks to service strong online demand via click & collect or by operating dark stores to fulfill online postal orders”.
On a positive note, the remainder of portfolio visitation is 90% of pre-pandemic levels. Additionally, retail sales are up 7.1%.
Overall, the total portfolio visitation was 55%. As a result, gross rental billings averaged just 74%.
Again NSW and Victoria lagged with 62% of billing collected, however. COVID-normal states reported 96% gross collections.
“Pleasingly, we have just 4% of retailer debt outstanding from FY21, down from 6% at 30 June 2021”.
Vicinity Centres signed 369 new lease deals with an average spread of negative 7.2%. This is an improvement on 2021 where 1,257 deals were signed with a negative 12.7% spread.
Leasing spread is the difference between the existing and new lease contracts.
“…we believe that maintaining high occupancy has delivered the best cash outcome for our securityholders”.
Total occupancy across the portfolio was 98.1%, a 10 basis point drop on the prior quarter.
Demand remains resilient
Management noted that once restrictions do ease, shoppers will return almost immediately.
In the week prior to opening, Victoria recorded 49% of 2019 levels. Following the reopening, this number jumped to 82%.
It’s a similar trend for NSW, going from 49% to 93% over the same period.
While foot traffic still remains below 2019 levels, customers are splashing big per visit.
Spend per visit increased 30% across the portfolio. This is on top of last year’s 20% jump.
Portfolio revamp as customer preferences evolve
Vicinity Centres has made several changes to its portfolio over the quarter as it looks to counter the acceleration of e-commerce.
The business divested a 50% interest in Runaway Bay while acquiring Harbourtown Town Outlets.
Furthermore, Bankstown Central will add a new supermarket and fresh food mall ahead of a mixed-use development.
Mixed-use development typically involves a combination of retail stores and apartments.
Vicinity is trialling drone deliveries outside of its Grand Plaza in QLD.
It’s also installing electric vehicle charging stations at up to 30 centres to align with its net zero 2030 carbon target.
Finally, the business made a strategic investment in Global Marketplace, the owner of Click Frenzy.
The partnership will include joint marketing events to drive sales and distribution through Vicinity Centres.
My take
Westfield owner Scentre Group (ASX: SCG) reported a similar set of results yesterday. Traffic is down, but spending per visit is up.
It’s positive to see the business proactively changing centre mix to evolving trends.
Management did not provide guidance, but I suspect Vicinity Centres could surprise the market as its goes into peak Christmas shopping.
