Embattled women’s wear retailer Mosaic Group has settled its nasty rental standoff with Australia’s largest retail landlord that saw it locked out of 129 of its stores in Westfield’s malls two weeks ago.
But that won’t stop the Sydney-based company from looking to close upwards of 300 stores nationally in the next one to two years as a result of the impact of COVID-19 and the lockdowns. Mosaic, which operates stores such as Noni B, Rivers, Millers and Katies, said all non-Victorian stores in Westfield shopping centres reopened over the weekend after both groups settled their dispute on “confidential” terms.
Westfield owner Scentre Group locked the doors on Mosaic’s stores on August 20 in a dramatic escalation of tensions between major landlords and their retail tenants over nonpayment of rent as a result of the coronavirus pandemic.
It is a big problem for Scentre – the company set up a $230 million provision in its June accounts to handle rent nonpayments and other losses associated with tenants in difficulties because of COVID-19 lockdowns.
Mosaic shares leaped more than 17% to 56.5 cents. Scentre shares rose 5.6% to $2.26.
Mosaic Chairman, Richard Facioni said in Monday’s announcement: “We’re pleased to have reopened our Westfield stores over the weekend following a mutually agreeable outcome to our negotiations with Scentre Group. Our Victorian stores remain temporarily closed for health and safety reasons. We look forward to reopening those stores as soon as it is safe for our team and customers to do so.
“We have had a long-standing relationship with Westfield enabling us to reach a solution that worked for both parties.
“This is a good outcome for Mosaic and, in particular, the 400 affected team members. As we noted last week, shuttered stores work for no one.”
Mosaic said it “will continue to negotiate with landlords nationally to achieve commercially sound lease terms consistent with the fundamental shift the Group sees in the retail rental market.
“Whilst the Group will seek to minimise future store closures, it continues to anticipate the potential closure of 300-500 stores over the coming 12 – 24 months,” it said.
Meanwhile ratings group, Moody’s doesn’t really like the tenor last week’s interim result from Scentre.
In commentary issued after the results, Moody’s said the results that highlighted the difficulties for retail landlords from the disruption caused by the coronavirus pandemic and are credit negative.
(Will the settlement of the brawl with Mosaic change Moody’s attitude?)
Moody’s has Scentre on a negative outlook.
“Reported EBIT declined by a considerable 33% from a year earlier to AUD637.4 million. The decline primarily reflected an expected credit charge relating to the coronavirus pandemic of AUD232.1 million, although asset sales in 2019 also led to lower earnings. Of the expected credit charge, management has indicated that around one-third has been utilised and largely reflects waived rent.
“Operating cash flow of AUD210.8 million for the period was down more than 60% from the prior comparable period, as gross cash rent collection was 70% of gross rental billings. This, in large part, reflected the low cash collection rate of 48% for the June quarter, which was weighed down by very low collection rates of 28% for April and 35% for May, the two months during which the strictest government restrictions were in place.
“While the effects from the coronavirus materially weakened Scentre’s cash collections in the first half of 2020, collections have started to improve more recently, holding at or above 80% for June and July. Scentre has stated that August is tracking similar to these levels. This, coupled with store openings and customer visitations recovering toward pre-coronavirus levels, should underpin higher cash flow for the second half of 2020 and through 2021.
“We expect cash rent collection to return to more normal levels once Scentre works through its remaining negotiations with its retail tenants. The group reported that through 20 August it had agreed on arrangements with 2,438, or around 68%, of its 3,600 retail partners. This included completing negotiations for over 60% of its small and midsize enterprise tenants, which are entitled to rent reductions in line with reduced revenue as part of a code of conduct implemented by the Australian government,” Moody’s said.
