A year of resilience for Vicinity Centres amid retail sales lift and CBD recovery

A year of resilience for Vicinity Centres amid retail sales lift and CBD recovery

Vicinity Centres' Chadtsone shopping centre

Retail property owner Vicinity Centres (ASX: VCX) has been buoyed by a rebound in property income to pre-COVID levels and a healthy rise in retail sales over FY23 to post a net profit of $271.5 million.

While the result is well down on the $1.2 billion bottom-line result of a year earlier, Vicinity’s latest profit contains a host of positives that include a resurgence in retail trade for its CBD centres amid a return to the office by work-from-home staff and a rebound in international tourism adding to momentum.

The net profit result for FY23 was impacted by a $195.9 million writedown in property values, which compares with a $633.3 million increase in valuations a year earlier.  Among the exceptions was Chadstone, Australia’s largest retail centre, as the Melbourne property saw a $28.2 million increase in valuation following completion of The Social Quarter.

The measure of underlying profit for Vicinity - funds from operations - surged 14.4 per cent to $684.8 million in FY23. This was driven by a 12.1 per cent lift in net property income (NPI) to $900.2 million, which Vicinity says is now at pre-COVID levels.

Vicinity CEO Peter Huddle describes FY23 as ‘a year of resilience and growth’ for the company.

“During the year, we deliberately executed at pace while the retail sector was favourable,” he says.

“We delivered a significant level of high-quality leasing outcomes, focused on enhancing the retail mix of each centre and reducing our income at risk, while simultaneously negotiating favourable leasing spreads which support current and future NPI growth.

“Furthermore, we have continued to invest our capital to progress development approvals and execute project activity that will ultimately deliver long-term value to our stakeholders, despite near-term, heightened macroeconomic uncertainty.”

Vicinity reported that retail sales across its shopping centre portfolio rose 8 per cent in the second half of FY23 compared to the previous corresponding period, although growth had moderated in the fourth quarter.

Food catering, food retail and jewellery posted the strongest growth rates of 21.1 per cent, 14.7 per cent and 14.6 per cent respectively.

Luxury maintained momentum in the second half, with sales up 7.3 per cent, while Vicinity’s premium centres, comprising Chadstone, Outlets and CBD divisions, were up 7.2 per cent, 8.8 per cent and 21 per cent respectively.

Homewares and the apparel-footwear sector experienced flat sales during the June quarter.

Vicinity reported a 30 per cent lift in visitation across its CBD portfolio as office workers returned to city centres, taking the overall visitation rate to 77 per cent of pre-COVID levels.

The company leased 306 vacant stores in FY23, lifting occupancy across its portfolio to 98.8 per cent at the end of June from 98.6 per cent at the end of December last year. This compares with 98 per cent at the end of December 2020, at the height of the pandemic.

Vicinity secured almost 2,250 leasing deals in FY23 which it says is the most of any year since the company’s inception in 2015.

The group is forecasting to deliver adjusted funds from operations of between 14.1c to 14.5c per security in FY24. This is up from 12.7c per security posted in FY23.

Vicinity is making a final distribution of 6.25c per security for a full-year distribution of 12c.

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