JB Hi-Fi and Noni B talk tough on rents, but Westfield says vacancies low in Australian malls

More retailers are joining the chorus about retail rents, but Australia’s largest shopping centre landlord has just unveiled a bumper rise in profit, and says it barely has any vacancies in its local shopping centres.

Westfield, the world’s second-biggest shopping centre owner with $61.7 billion of assets under management, including 118 shopping centres worldwide, says there was record volume of leasing activity during the year.

As at December 31, 2011, Westfield says its Australia/New Zealand portfolio was more than 99.5% leased, higher than overall leasing levels of 97.5%. In the US, the percentage was 93.1%; in the United Kingdom, 99%.

Westfield added that Westfield Sydney had achieved the “highest specialty sales productivity” in its global portfolio and reported a 37.5% in profit to $1.5 billion.

But comparable specialty retail sales were weak in Australia, up 1.5% over the year but lifting to 2% in the December quarter. The local specialty retail sales were well below the 7.1% lift in the US, and 1.9% in New Zealand.

Westfield’s 2011 full-year result coincides with comments from retailers about their lease arrangements, with some saying they’ve been able to strike favourable deals with landlords, and others flagging a willingness to relocate or exit stores with “unrealistic” rents.

It also comes amid warnings that retail collapses will continue to rise through 2012, the most recent being this week’s Sleep City, and warnings from high-profile electronics retailer JB Hi-Fi that it would review each lease as it comes up.

“If it’s in our interests to see [the rent] come down, if we can, we’ll have those discussions,” chief executive Terry Smart told the Australian Financial Review this week.

Westfield’s result seem to gel with industry commentary that it is the smaller, more marginal shopping centres that are offering rent cuts of more than 10% and sweeteners for new tenants.

Leasing Information Services noting at the end of last year that rents were already falling in certain centres and the more retail vulnerable categories of clothing, footwear, gaming, books, magazines and recreation had already received rent cuts.

Releasing its first-half profit this morning, Noni B, which has 212 stores, said it had succeeded in negotiating better terms with its landlords.

The fashion retailer told the market that it continues to “fine-tune” its store network, opening two stores in Victoria but closing three underperforming stores.

“A fourth store has been closed since the beginning of January, bringing the number of Noni B stores to 212.”

“Where we have renewed leases during the period, in most cases we succeeded in negotiating more favourable terms.”

And discount retailer the Reject Shop reiterated that it is “prepared to relocate or exit stores where occupancy costs are unrealistic or the long-term viability of the retail precinct is questionable.”

The company, which produced a 4% lift in net profit after tax to $16.6 million, plans to open seven new stores in the second half, although it “continues to assess alternative store locations including the opening of stores in smaller towns”.

Flagging another “challenging” six months, it also plans to expand online.

Meanwhile, Westfield co-CEOs Steven and Peter Lowy said they were focused on investing the group’s capital in “highly productive shopping centres with strong franchise characteristics that are resilient through economic cycles”.

The brothers also flagged the sales of “non-core assets”.

“We will continue to appropriately manage our invested capital position, including introducing further joint ventures and dispositions of non-core assets, to deliver sustainable earnings growth and higher returns on equity.”

The Sydney-based company also said it was forming a $US4.8 billion joint venture with Canada Pension Plan Investment Board for a dozen malls.


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