By Larry Schlesinger
Shopping centre owner Vicinity Centres beat its earnings guidance over FY24 and lifted occupancy to its highest level since before the pandemic, despite slowing sales growth amid a cost of living crisis.
Vicinity, which co-owns Chadstone Shopping Centre with Rich Lister John Gandel, reported operating earnings of 14.6¢ per security after saying in February that it would hit the “top end” of its guidance of between 14.1¢ and 14.5¢.
Statutory profit more than doubled to $547.1 million. Vicinity paid a full-year distribution of 11.75¢, down marginally from 12¢ paid in FY23.
Vicinity, led by Peter Huddle, guided to increased earnings and a bump up in the distribution in FY25 after forecasting funds from operations of between 14.5¢ and 14.8¢ and adjusted funds from operation – from which it pays its distribution – of 12.3¢ to 12.6¢.
“As expected, elevated cost of living tempered retail sales growth in the second half of FY24, however retail confidence to lock in new leases remained robust with the team negotiating more than 2000 leasing deals over the year,” Mr Huddle said.
Mr Huddle said Vicinity was writing longer leasing deals, averaging 3.6 years, up from 3.3 years. On the property front, capitalisation rates, which are akin to investment yields, were showing signs of stabilising.
These leasing deals, struck at positive leasing spreads – the difference in rents between expiring and new rental agreements – of 1.1 per cent were down from 3.3 per cent reported over the first half of FY24, but higher than the average of 0.3 per cent across the 2023 full year. Leasing spreads are a closely watched metric in the retail real estate sector.
This strong leasing activity lifted occupancy across Vicinity’s 57 assets under management, worth $23.2 billion, to 99.3 per cent, the highest level since before the pandemic. Occupancy at its CBD malls including Emporium Melbourne and Sydney’s Queen Victoria Building hit 99.6 per cent, higher than before the pandemic, demonstrating the resilience of CBD retail despite high office vacancy rates.
The mall landlord also revealed it had on Monday settled on a $420 million half-stake in Perth’s Joondalup Shopping Centre, acquiring it from the Future Fund. The other half is owned by Lendlease via its unlisted Australian Prime Property Fund.
The acquisition includes the retail development management rights. The mall generates $800 million in annual retail sales.
Wilson Asset Management’s Anna Milne said Vicinity had delivered a “strong, clean result”.
“The purchase of a 50 per cent interest in Lakeside Joondalup is on strategy for their active portfolio premiumisation through high-quality acquisitions, premium developments and disposal of non-core assets,” she said.
“Vicinity produced a strong FY24 result which was broadly in line with consensus,” said Citi’s Howard Penny.
“Guidance is slightly above consensus expectations which could provides some short-term relative share support today,” he added.
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