Retail sales slide, but Vicinity shopping centres prove ‘resilient’
Shopping mall owner Vicinity Centres beat market expectations, supported by strong rental growth and new leasing deals with its tenants, to post a 14.5 per cent jump in full-year earnings.
However, the company warned retail sales were moderating as higher interest rates and the rising cost of living took a toll on shoppers’ spending habits.
The launch of Chadstone’s new entertainment and dining precinct, The Social Quarter, resulted in a lift in the shopping centre’s value.
Vicinity’s funds from operations – a key industry metric used for earnings – jumped to $684.8 million, from $598.3 million in the same period a year earlier, and beat analysts’ consensus estimates of $663.4 million.
Full-year funds from operations were 15¢ per security, up from 13.1¢ a year earlier.
Investors welcomed the news, pushing up Vicinity shares more than 3 per cent to $1.90 in late trading on the ASX.
Visitor numbers to Vicinity’s shopping centres climbed more than 30 per cent following a recovery in tourism after the pandemic and as more CBD workers returned to the office.
However, a $338.4 million markdown in the value of the company’s property portfolio tempered the result, with 2.5 per cent to 3 per cent value declines of its CBD retail, regional and neighbourhood assets. The writedowns resulted in the group posting a statutory profit of $271.5 million for the year to June 30, down 78 per cent on the year-earlier period.
The weighted average capitalisation rate – a favourite metric for investors in measuring annual return on an asset – fell by 16 basis points.
Melbourne’s giant Chadstone shopping centre helped offset portfolio losses. A valuation uplift was driven by income growth and recent development completions, including its leisure and entertainment centre, The Social Quarter.
The $70 million project, which spans more than 10,350 square metres of new area, accommodates a collection of 17 entertainment and dining experiences.
Chief executive Peter Huddle said the company had inked a record number of leasing agreements over the year. Many tenants converted their deals from short term to long term.
Occupancy, at 98.8 per cent, is at its highest level since the pandemic began. He said conditions were challenging, but the retail sector remained remarkably resilient in the face of rising rates and cost of living pressures.
Although retail sales moderated in June, “food, entertainment and leisure precincts still offer opportunities for growth in 2024, and demand for space in premium centres is still strong,” he said. “We also expect solid rental growth.”
Vicinity provided full-year 2024 funds from operations guidance of 14.1¢ to 14.5¢ per security – lower than this year’s 15¢ – but still slightly above analysts’ long-term estimates.
The board declared a final distribution of 6.5¢ per security, bringing the total distribution for the full year to 12¢.
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