Vicinity Centres Expects FY 2024 Funds From Operations/Security of 14.1-14.5 Australian Cents

By David Winning

SYDNEY–Vicinity Centres maintained a cautious outlook despite beating guidance for funds from operations in fiscal 2023.
Vicinity said there are signs that sales growth has begun to moderate, as households adjust to higher interest rates, power bills and prices of food products. A conservative consumer could weigh on demand for retail space in the network of malls that Vicinity owns around Australia.

On Wednesday, Vicinity said it expects funds from operations per security of between 14.1 Australian cents (9.2 U.S. cents) and 14.5 cents in the 12 months through June, 2024. It projected adjusted funds from operations per security of between 11.8 cents and 12.2 cents for the same period.
The guidance was provided alongside a net profit of A$271.5 million for fiscal 2023, down 78% on A$1.22 billion a year earlier. While Vicinity recorded a A$338.4 million loss in valuations of its property portfolio compared to a year earlier, management said operating metrics had improved.
Funds from operations rose by 15% to A$684.8 million across fiscal 2023. When measured on a per-security basis, funds from operations were 15.0 cents. Vicinity in February had upgraded its guidance for funds from operations per security to 14.0-14.6 cents, and in early May signaled confidence in reaching the top end of that range.
The company said 0.6 cents embedded in its fiscal 2023 funds from operations represented a reversal of waivers and provisions in fiscal 2022. Excluding that and transactions, FFO were 14.3 cents per security, it said.
Directors of the company declared a final distribution of 6.25 cents a share.
“During the year, we deliberately executed at pace while the retail sector was favorable,” said Chief Executive Peter Huddle. “We delivered a significant level of high-quality leasing outcomes, focused on enhancing the retail mix of each center and reducing our income at risk, while simultaneously negotiating favourable leasing spreads which support current and future Net Property Income growth.”
Vicinity’s recovery from the Covid-19 pandemic has been evident in a range of metrics that include higher retail sales across its portfolio and positive leasing spreads. The company said retail sales rose by 8% in the second half of fiscal 2023, although the rate of sales growth moderated late in the fourth quarter.
Interest rates rose through much of the past year and many households are adjusting to sharply higher home loan repayments as fixed-rate deals expired. Rents have also soared, supported by record migration. While inflation nation-wide cooled by more than expected in the second quarter of 2023, consumer prices were still up by 6.0% on a year ago.
“The volume and characteristics of the leasing deals completed in FY 2023 clearly demonstrates that large, national retailers are now willing to lock in long term leases in traditional retail,” Huddle said. “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.”
Write to David Winning at [email protected]