Vicinity Centres has announced its results for the six months ended 31 December 2023 (‘1H FY24’), with statutory net profit after tax (‘NPAT’) of $223.5 million and Funds From Operations (‘FFO’) down 3.2%, to $345.6 million.
Vicinity’s CEO and Managing Director, Peter Huddle said: “Vicinity has had a strong start to FY24. Our operating and financial metrics highlight our continued focus on executing at pace to embed earnings resilience and prudently managing our balance sheet, while delivering on our long-term growth priorities.
“With an elevated cost of capital, a disciplined approach to project prioritisation and focus on sustained value growth remain our guiding principles when deploying capital.
“1H FY24 was a busy period of strategic execution and investment, and I am delighted with the momentum that has been set and the progress we have made since we refreshed Vicinity’s strategy in June 2023.”
Notably, as announced to the market on 31 October 2023, Vicinity agreed to acquire the remaining 49% interest in Chatswood Chase for $307 million, with settlement planned for 15 March 2024.
Chatswood Chase Sydney
In addition to the previously announced sale of Roxburgh Village for $124 million, Vicinity has entered into contracts to sell Kurralta Central for $74 million as well as Dianella Plaza for $76 million. Vicinity has also divested several ancillary properties.
In total, Vicinity has entered into contracts for and/or settled on asset sales totalling approximately $316 million and which have collectively delivered a 13.2% premium to combined June 2023 book values.
“These transactions demonstrate disciplined execution of our active and ongoing investment program where we are upweighting our portfolio to premium retail assets, such as Chatswood Chase, that offer superior long-term growth potential and enhanced value accretion opportunities,” said Huddle.
Vicinity has entered into a long-term partnership with Cartology (part of Woolworths Group Limited) whereby Cartology will operate over 1,100 digital small and large format advertising screens across its centres (commencing in 2H FY24). This new model is expected to deliver greater certainty of income and enhanced commercial value.
Northland
Retail sales
Total portfolio retail sales growth of 1.5% in 1H FY24 was largely driven by food including fresh food, dining, and supermarkets as well as sporting goods, cosmetics, and retail services.
Month-on-month retail sales growth moderated over 1H FY24, reflecting the softening of consumer demand amid cost-of-living pressures, together with the cycling of particularly strong trading in the prior comparable period.
Shoppers continue to show a willingness and capacity to spend, but are more discerning and value-conscious, highlighted by the strong patronage across the portfolio during the Black Friday and Boxing Day sales events.
Huddle said, “There is no doubt that elevated living costs for Australian households are now impacting consumption, particularly across the discretionary goods categories. That said, with international tourism nearing pre-pandemic levels, migration at historical highs and with a tight employment market, we continue to observe resilience. This resilience is supporting retailer confidence which continues to be reflected in our operating metrics.
“The performance of the retail sector in 2024 ultimately depends on the level of inflation, when interest rates will peak and the extent to which employment markets remain tight.”
Portfolio performance
In 1H FY24, Vicinity completed 676 comparable leasing deals. Leasing spreads remained favourable, with a positive leasing spread for 1H FY24 of +3.3%, relative to +0.3% over FY23.
Highlighting robust retailer confidence, the Apparel & Footwear, Leisure, and Jewellery categories performed strongly post-pandemic and while retail sales have moderated, collectively these categories delivered a high single digit leasing spread in 1H FY24.
The QVB, Sydney
Vicinity’s specialty occupancy cost ratio remains at 13.7% which compares to 15.0% immediately pre-COVID and continues to demonstrate the resilience of current rents.
“The structure, tenure, and value of rents on new leases written in the period reflects our laser focus on locking in long-term, traditional specialty leases with fixed annual escalators despite a moderating retail sales environment,” said Huddle.
“We achieved an uplift in the occupancy rate compared to 30 June 2023 by leasing almost 16,000m2 of vacant store space. Consequently, occupancy of 99.1% is now at its highest point since 2019, up from 98.8% at 30 June 2023, and 98.0% at the peak of the pandemic (Dec-20). We have also continued our focus on minimising our income at risk having again reduced the number of leases on holdover in the period.”
Development pipeline
In terms of development projects in progress, the development of the One Middle Road office tower and redeveloped fresh food and dining precinct at Chadstone is well progressed.
One Middle Road – Render
The redevelopment of Chatswood Chase remains a critical and exciting project for Vicinity in 2024 and 2025. Paving the way for the redevelopment of the major retail offer, the construction of the lower ground fresh food and dining precinct is on track to be completed by April 2024, at which point the major development is expected to be ramping up. Retailer interest in the redeveloped Chatswood Chase is strong, with 64% of the income secured, via heads of agreement.
Huddle said: “In an environment of elevated costs of capital and ongoing dislocation in construction markets nationally, we have naturally tightened our focus on capital deployment across our retail and mixed- use development pipeline.
“Delivering project returns above our cost of capital remains a key priority and is enabled by intense de-risking of projects from both an income and cost perspective,” he said.
Vicinity now expects investment capital expenditure in FY24 to be approximately $350 million (previously, $400 million) reflecting delayed redevelopment of Galleria in Western Australia, and additional development.
