Vicinity gives upbeat report, saying day trippers supporting city comeback

Shopping centre giant Vicinity Centres gave an upbeat assessment of the future of cities saying that CBD day trippers were taking up the slack left by the slow return of office workers.

Vicinity Centres chief executive Grant Kelley at the Chadstone shopping centre in Melbourne. Picture: David Geraghty

Shopping centre giant Vicinity Centres says that day trippers are replacing absent office workers in cities around Australia.

Big malls remain under pressure but as it delivered its annual results on Wednesday, Vicinity said its convenience-based properties are performing well, with many parts of retail trading ahead of expectations.

Vicinity gave an upbeat assessment of the future of cities saying that CBD day trippers were taking up the slack left by the slow return of office workers, who had traditionally provided the backbone of the weekday economy.

Vicinity chief executive Grant Kelley said this was particularly apparent in Melbourne, where sports and cultural events were helping to drive driving people into the cities on weekends.

My Kelley said shopping centres would remain central for customers despite slowdowns prompted by Covid-19 or flu outbreaks.

“The reality is we think cities will remain relevant,” he said.

He added that the recovery story for malls was “reasonably well underwritten” and pointed to Vicinity’s strong cash collections.

He said the group had confidence in the performance of its centres, particularly its high-performing discount outlet business, but was keeping a “watching brief” on the macroeconomic picture.

Vicinity had positive leasing spreads overall and there had also been a recovery in CBD malls that were hardest-hit during the pandemic.

“CBDs have performed beyond expectations over the last period,” Mr Kelley said. “We are transitioning to a living with Covid economy and maybe even beyond that.”

Vicinity’s landmark Chadstone shopping centre in Melbourne is being expanded. Picture: Getty Images

The company reported a sustained rebound in retail sales and retailer confidence, notably in the most recent half, highlighting retail sector resilience.

Vicinity is stepping up plans for mixed-use development and is also making moves in funds management, where it is making a play to run Collimate Capital’s retail assets.

And the group’s landmark Chadstone shopping centre in Melbourne is being expanded. Officeworks is shifting into new offices and a new dining and living at leisure precinct is underway. The planned One Middle Road project office at Chadstone is also now ready to go ahead.

Vicinity turned around after the pandemic crisis and generated a $1.21bn profit, partly on the back of property valuation gains of $554m.

The trust delivered 7.1 per cent growth in Funds From Operations as it recovered from the depths of the pandemic despite continued disruption from Covid lockdowns in NSW and Victoria.

“After prolonged lockdowns in our two largest states of NSW and Victoria in the first half of 2022, the retail sector has enjoyed a sustained rebound in retail sales and importantly, retailer confidence,” Mr Kelley said.

Vicinity generated an adjusted FFO of $496.8m or 10.9c per security and will pay a full year distribution to 10.4c per security. It forecast that fiscal 2023 FFO per security and AFFO per security are expected to be in the range of 13c to 13.6c and 10.9c to 11.5c, respectively.

The full year distribution payout will be within its target range of 95-100 per cent of AFFO.

Vicinity securities slipped by 5c to close at $2.

UBS analyst Grant McCasker noted that Vicinity has been the best performing REIT this year but said that the guidance was below expectations.

“While the guidance is disappointing, retail operating metrics are solid, the one concern being holdovers at 9 per cent,” he said.

Citi analysts said that jewellery, apparel, footwear and food catering were all reporting double digit fiscal 2022 growth, indicating more resilient discretionary spend.

“The result has beaten/in line with market expectations but the key debate in our view will be how much more this stock could outperform given the 21.3 per cent year to date share price return and significant out-performance of the rest of the sector,” they said.