Cost of living impact looms but Vicinity beats guidance

The shopping centre giant ended the year with its highest occupancy rate across 57 assets since the start of the Covid pandemic.

Vicinity, which co-owns Chadstone Shopping Centre, leased more than 230 vacant shops in the 2024 financial year. Picture: Tony Gough

Vicinity Centres has defied the impact of the cost-of-living crisis in the second half of the 2024 financial year to beat its earnings guidance, underpinned by a strong leasing performance.

Boosted by seven strategic asset sales, totalling $550m, the shopping centre giant booked a net profit of $547.1m for the 2024 financial year – compared to $271.5m in the prior year.

Chief executive Peter Huddle said it was a “highly productive year” with Vicinity, which co-owns Chadstone Shopping Centre, leasing more than 230 vacant shops in the 2024 financial year.

It ended the year with an occupancy rate across its 57 assets under management at 99.3 per cent, its highest point since the start of the Covid pandemic.

Its CBD shopping centre occupancy – which includes QueensPlaza in Brisbane and Sydney’s Queen Victoria Building – was at 99.6 per cent which also exceeded pre-Covid levels.

The company reported that Funds From Operations per security and Adjusted Funds from operations per security in FY24 were the above guidance range at 14.6c and 12.3c respectively, driven by strong leasing outcomes and portfolio performance.

In February Vicinity announced its FFO guidance was between 14.1c and 14.5c.

The momentum is expected to continue in FY25 with FFO and AFFO guidance per security expected to be within the 14.5c to 14.8c and 12.3c to 12.6c ranges, respectively. The guidance includes further $250m in sales targeted for 2024-25.

“Consequently, we enter FY25 in a strong position to deliver comparable NPI (Net Profits Interest) growth of 3 per cent to 3.5 per cent,” Mr Huddle said.

However, he said retail sales slowed in the second half of FY24.

“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,” he said.

“Critical to supporting our earnings resilience, these deals were negotiated with an average fixed annual rent escalator of 4.8 per cent.

“Importantly, we are writing more long-term deals, resulting in a lengthening of our weighted average lease expiry, from 3.3 years at 30 June 2023, to 3.6 years at 30 June 2024.”

Vicinity also announced it has acquired a 50 per cent interest in Lakeside Joondalup, in Perth’s north suburbs for $420m. The other half is owned by Lendlease via its unlisted Australian Prime Property Fund.

The acquisition includes the retail development management rights and the shopping centre generates about $800m in annual retail sales.

“The acquisition of Lakeside Joondalup, the forthcoming redevelopment of Galleria and divestment of four non-strategic assets in Western Australia, has been a deliberate strategy to recycle and redeploy capital to strengthen our asset portfolio in Western Australia,” Mr Huddle said.

“With our strong balance sheet and disciplined approach to capital allocation, we believe that our ability and willingness to invest in the vibrancy and quality of our asset portfolio continues to be a competitive advantage.

“That said, we remain acutely aware of the elevated costs of capital and the industry-wide challenges in the construction sector, nationally.

“At our 1H FY24 results in February, we communicated an elongation of our development pipeline and prioritisation of higher value retail developments, and as we enter FY25, there is

no change to that approach.

“Today, the majority of committed capital spend relates to two major projects Chadstone and Chatswood Chase, two of our premium assets, both with significant growth potential.

“During the year, we also completed four smaller redevelopments at Bayside and Emporium Melbourne in Victoria, Castle Plaza in South Australia, and Nepean Village in NSW.”

Citi Group said the FY25 Vicinity produced a strong FY24 result which was broadly in line with consensus.

“Guidance is slightly above consensus expectations which could provides some short-term relative share support,” it said.

Vicinity announced a final distribution per security of 5.9c, bringing the 2024 financial year distribution per security to 11.75c, just under FY23’s 12c, representing a payout ratio of 95.2 per cent of AFFO

Vicinity shareholders will receive a payment of 0.059c per stapled security.

At 1300 (AEST) Vicinity shares were 0.2 per cent higher at $2.18.