Vicinity Centres records a profit of $271.5m despite asset writedowns

Shopping centre giant Vicinity Centres has continued to ride the post-pandemic retail wave helping it absorb asset revaluations.

Vicinity Centres chief executive Peter Huddle.

Shopping centre giant Vicinity Centres has continued to ride the post-pandemic retail wave helping it absorb asset revaluations.

Vicinity’s after tax profit fell to $271.5m in 2022-23 after being hit by a reduction in asset values. The company recorded a $1.215bn profit the year before, helped by revaluation gains of $554m.

Chief executive Peter Huddle said the combination of an early revaluation strategy and a 14.5 per cent increase in earnings ensured the strong result.

“During the middle of the pandemic we did valuation adjustments across our whole portfolio and we are still probably 9 per cent below in terms of the total value of our portfolio pre-pandemic and in our CBD probably 20 per cent below,” he said.

“We had some adjustments at that point in time and our valuations at the moment are relative to a number of things and part of it is cashflow and we adjusted the valuation offset by income growth.”

Vicinity’s portfolio recorded a $338.4m in writedowns for the full year, of which there was a $229.1m decline in the six months to June 30. That was partially offset by robust income growth with its funds from operations (FFO) at $684.8m compared to $598.3m a year ago.

The board declared a final distribution per security of 6.25c, bringing the total distribution to 12c from 10.4c in 2021-22.

The company forecast that its 2023-24 FFO per security is expected to be in the range of 14.1c to 14.5c. Investment capital expenditure in the year is expected to be about $400m.

Vicinity’s shares closed 4.5c higher at $1.90.

Mr Huddle described 2022-23 as a year of “resilience and growth”. “During the year, we deliberately executed at pace while the retail sector was favourable.

“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.

“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 completed almost 2250 deals surpassing any previous year since the company’s inception in 2015.

Total retail sales in the second half of 2022-23 were up 8 per cent on the same period last year with mid to high single-digit growth rates delivered across mini-majors, supermarkets, discount and department stores, and 10 per cent specialty growth.

However, while the retail sector remained resilient, the rate of sales growth moderated late in the fourth quarter as higher living costs impacted consumption.

Mr Huddle said leasing deals in 2022-23 demonstrated that large, national retailers were willing to lock in long-term leases.

“During the year, we transitioned more than 200 shops from short-term to long-term leases and this is evident in our significantly reduced holdover count and income at risk,” he said.

Across the CBD portfolio, retail sales growth was strong in the second half underpinned by a 30 per cent uplift in visitation, with the steady return of office workers to CBDs and the continued recovery of international tourism, now at 77 per cent of pre-Covid.

While the number of international tourists is forecast to reach pre-Covid levels in 2025, tourism spend is expected to return to pre-Covid levels in 2024.