Fluctuating consumer sentiment prompts erratic REIT retail leasing results

Fluctuating consumer sentiment prompts erratic REIT retail leasing results
Fluctuating consumer sentiment prompts erratic REIT retail leasing results

Retail and residential property took the headlines last week with several of the big participants in those sectors reporting their results for 2015.

Major shopping centre owners said sales conditions for their malls were improving, but still challenging, while property values were rising due to investor demand for income-producing assets.

Charter Hall Retail REIT, which owns small and neighbourhood shopping centres, lifted its statutory profit by more than 90% to $162.5 million driven by increases in the value of its shopping centre properties.

“Ongoing investor interest in this asset class has resulted in yields for high quality assets tightening sharply over the past 12 months and as such we are expecting to see growth in the value of the REIT’s portfolio over the 2016 financial year,” chief executive Scott Dundas said.

The REIT’s operating profit was up 5.2% to $110.8 million.

Federation Centres, which merged with Novion Property Group in June to form a $22 billion REIT, reported a $675.1 million statutory profit for the 2015 financial year, and underlying earnings of $683.1 million, up 6.2%.

Comparable specialty store sales were up 3.3%, an improvement on the 2.4% sales growth the previous year. Comparable net property income growth was 2.5%, up from 1.2%.

However, the REIT’s leasing results were weaker with negative 2.2% leasing spreads across the combined portfolio, worse than the negative 1.5% spreads achieved in 2014.

The relatively mature Novion Property Group assets dragged on that result, with negative 4.7% spreads. Managers of the Federation Centres properties were able to improve leasing spreads by 3.2% by changing tenant mixes.

The group recently replaced Federation’s chief executive Steven Sewell, who had been set to head the combined group, with Novion’s head Angus McNaughton.

McNaughton said the sector was slowly improving but expected consumer sentiment to fluctuate.

Shopping Centres Australiasia Property Group worked hard on its specialty store leasing through 2015, with a project targeted at improving occupancy rates. It spent $9.6 million on incentives such as assistance with fitouts for tenants.

“During FY15 we had 50 specialty tenant renewals, and an average rental uplift of 7.3% was achieved,” chief executive Anthony Mellowes said. “This is a positive start to our first rent renewal cycle which will continue through FY16 to FY20.”

Specialty stores in SCA’s centres lifted sales by 5.6%.

Stockland Property Group, which derives about 60% of its earnings from retail property, reported earnings in that division were up 4.2%.

Its shopping centres achieved their strongest specialty store growth in four years, rising 7%. Food catering and fast casual dining, communication technology, services, homewares and apparel were the best performing categories.

Residential

Many investors were more interested in Stockland’s residential division, with the group being one of Australia’s largest home builders.

Profits in that area were up 73.5% to $166 million.

Residential developers have used reporting season as a platform to call for discussion on topics such as the undersupply of homes in Australia and stamp duty. They have cautioned regulators not to go too far with moves to slow the housing market, which they say is varied across the country.

AV Jennings chief executive Peter Summers said stamp duty was holding up construction and adding to housing costs. That group reported before-tax profits were up 78.3% to $48.2 million, with improving housing markets lifting revenue by 26.9% to $317.9 million.

Zoe Fielding

Zoe Fielding

I am a freelance journalist and editor with more than 15 years experience specialising in personal finance, property, financial services and financial technology. A skilled writer and researcher, I have extensive experience producing high quality content for corporate and media clients. I am used to working to tight deadlines and tailoring the pieces I produce to suit a variety of audiences and formats.

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Charter Hall Shopping Centres

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