The Vicinity Centres (ASX: VCX) share price has fallen this morning despite the shopping centre operator announcing the reopening of more than 500 stores. Vicinity sees signs of improvement in shopping centre visitor numbers, but March sales figures across its portfolio were down.
What does Vicinity Centres do?
Vicinity Centres derives its revenue from retail property ownership, management, and development. The group manages approximately $27 billion in shopping centres and has a direct portfolio interest in 62 shopping centres. Major shopping centres in its portfolio include Chadstone in Melbourne, Chatswood Chase in Sydney, and the DFO outlets.
Sales decline in March
Vicinity announced sales across its portfolio decreased by 16.5% for March 2020 versus March 2019. Sales for speciality stores and mini majors fell 31.1%, however, supermarket sales increased 22.2%. These metrics reflect the impact of store closures and 'stay at home' government directives, together with reduced foot traffic and dwell times.
As at 4 May, 50% of stores in Vicinity's portfolio were open, representing 65% of the portfolio's gross lettable area. The shopping centre operator withdrew earnings and distribution guidance in March given the uncertainty around the impact of COVID-19 on operations.
Rent negotiations with retailers
Vicinity says it is negotiating in good faith with retailers whose businesses have experienced a downturn as a result of COVID-19. It says it will accelerate temporary arrangements to assist storeholders through the situation.
Vicinity acknowledged that its income is being impacted negatively, but says it agrees with the Federal Government's sentiment that landlords and tenants have a shared responsibility to tackle the challenges brought about by these unprecedented times.
Cost reductions
Vicinity says it entered the coronavirus crisis in good shape, but given the impact of government restrictions and voluntary store closures, cost reductions have become necessary. Working hours have been decreased for 70% of team members, and some stood down, to 30 June 2020.
Board of director fees and executive committee salaries have been reduced by 20% for the 3 months from 1 April to 30 June 2020. The FY20 short-term incentive program has been cancelled, and an ongoing program to reduce costs implemented. All non-critical capital expenditure has been deferred, including the proposed redevelopment of Chatswood Chase.
Light at the end of the tunnel?
Vicinity says it has seen early signs of a recovery in centre visitation over the past week. Retailers that closed stores voluntarily are beginning to reopen with 530 stores reopening in the past 7 days.
CEO Grant Kelley said, "the retail environment remains unstable and we expect challenging conditions to persist for at least the next 12 months. However, we have been buoyed by Australia's resilience and the speed with which the pandemic has been contained."
