Retail landlords Vicinity Centres and Charter Hall Retail REIT have forecast new developments and a focus on food will boost earnings for the full year.
Though there are pockets of weakness among some retailers, the low unemployment, stable yet low interest rates, and demand for quality food courts will underpin earnings.
Artist impression of The Glen shopping centre in Melbourne’s south-east.
In the third-quarter results, the two said there were anomalies in the results due to school holidays and Easter occurring in April this year compared with March last year.
Retailers have also said the warm Autumn in NSW is having an impact on business, with many apparel stores undertaking a fresh round of discounting to shift stock and make room for winter woollies.
Vicinity reported comparable specialty stores moving annual turnover (MAT) growth up 1.1 per cent for the year to March 31, 2017, compared with 2.2 per cent to December 31, 2016.
Group chief executive Angis McNaughton said the group was focused on its development pipeline at The Glen and Chadstone in Melbourne, and an increase in the number of DFO sites.
He said Golden Age Group last month won a competitive tender to acquire the residential air rights at The Glen. Golden Age Group will develop more than 500 apartments in three towers on the southern end of the site, with construction expected to commence in early-to-mid-2019 and be completed within 24 months.
After the sale of residential air rights, total development costs at The Glen reduced by $30 million (Vicinity’s share: $15 million).
“While there are pockets of weakness in the retail trading environment, we believe that retail expenditure fundamentals remain sound. Unemployment remains relatively low as are interest rates, house prices are generally still growing, and the Victorian and NSW economies are performing well,” Mr McNaughton said.
Vicinity’s guidance for 2017 underlying earnings remains unchanged at 18.6¢ to 18.8¢ per security.
Charter Hall Retail REIT will also focus on development and asset recycling, according to fund manager Scott Dundas.
The two tenants, Coles and Woolworths, which have been undergoing a price war, reported solid growth of 2.8 per cent. This is a significant improvement compared with the prior corresponding quarter in 2016 of 1.2 per cent growth
“We continue to transition the portfolio from smaller non-core assets into larger centres where we can add value through active management. Our recent transactions and prudent capital management initiatives demonstrate our ability to execute on this strategy to deliver unitholders a secure and growing income stream,” Mr Dundas said.
In the first half of the 2017 year, the REIT has sold $71.2 million of assets. During the quarter ended March 31, Woolworths Rosehill was contracted for sale at $13 million and the REIT is now marketing about $170 million of assets and “continues to assess acquisition opportunities”.
Mr Dundas confirmed the full-year 2017 guidance for operating earnings is expected to be 30.4¢ per unit.