Retail recovery drives Vicinity Centres' profit to $1.2b as assets regain their shine

Retail recovery drives Vicinity Centres' profit to $1.2b as assets regain their shine

Artist's impression of Box Hill redevelopment. Courtesy of Vicinity Centres.

In further signs of recovery for the retail sector, Vicinity Centres (ASX: VCX) has reported a $1.2 billion profit for FY22 as shoppers returned in droves to the group’s Australian properties.

The result essentially reflects a reversal of property writedowns during the year with a $633.3 million increase in property valuations in FY22 almost erasing the $642.7 million slashed off the value of its portfolio the previous year.

However, Vicinity’s underlying performance has been supported by a sustained rebound in retail sales and retailer confidence, especially in the second half, which led to a 7.1 per cent increase in funds from operations (FFO) to $598 million. This is despite some of its operations being affected by lockdowns in NSW and Victoria during the first half of the year.

FFO growth was supported by an 8 per cent increase in net property income to $803 million, an indicator of strong retail sales and better-than-expected cash collections and rental growth. However, this was partially offset by higher net interest costs.

Vicinity Centres CEO Grant Kelley says FY22 has been a positive year for the group which has a $23.7 billion portfolio of 60 retail centres across Australia.

“Favourable retail trading conditions combined with strong operational execution and prudent financial stewardship, have underpinned an acceleration in our recovery as demonstrated by today’s results,” says Kelley.

“After prolonged lockdowns in our two largest states of NSW and Victoria in 1H FY22, the retail sector has enjoyed a sustained rebound in retail sales and importantly, retailer confidence.”

Vicinity Centres recorded a 1.6 per cent increase in asset valuations in the second half of the year, or $233 million. More than half of this increase was attributed to income growth at its flagship premium, outlet and sub-regional centres.

While CBD asset valuations held their ground during the latest half year, in line with 31 December 2021, Vicinity says the outlook is improving.

The group completed 1,378 leasing deals during the year, up 121 from the previous year despite an easing of activity in January and February this year. Notably, 71 per cent of the deals were secured with fixed annual rental increases of 5 per cent.

Rising confidence in the retail sector has prompted the group to bring a number of retail and mixed-use projects to fruition. Vicinity has a $2.9 billion development pipeline that it plans to complete between FY23 and FY27, including Chadstone, Box Hill Central and Victoria Gardens in Victoria, Chatswood Chase Sydney and Bankstown Central in NSW and Buranda Village in Queensland.

“Our development pipeline represents an exciting phase of growth for Vicinity,” says Kelley.

“Importantly, given we own the land parcels earmarked for retail and mixed-use development, the pipeline is able to be flexed up and down in order to preserve the risk and return parameters of projects and the pace of capital deployment, thereby maintaining our strong balance sheet, credit ratings and disciplined approach to paying distributions.”

Vicinity Centres is paying a final distribution of 5.7c per security, for a full-year payout of 10.4c.

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