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Vicinity’s FY22 results driven by strong operational execution and resilient retail sector

Vicinity Centres has released its results for the year ended 30 June 2022. FY22 was a year of recovery and progress at Vicinity, with the results highlighting strong operational and financial execution in a recovering retail landscape, where consumers continued to show confidence and capacity to spend, and retailer confidence was robust.

Vicinity delivered 7.1% growth in funds from operations (FFO) relative to FY21 despite continued disruption from COVID-related lockdowns in New South Wales and Victoria during 1H FY22 and the outbreak of Omicron from late December 2021. A statutory net profit after tax of $1,215 million, represents a $1,473 million increase on FY21. FFO growth was driven by an 8.0% uplift in Net Property Income to $803 million, largely reflecting sustained strength of retail sales and improved negotiation outcomes with retailers.

Grant Kelley, CEO and Managing Director, said: “FY22 has been a positive year for Vicinity. Favourable retail trading conditions combined with strong operational execution and prudent financial stewardship, have underpinned an acceleration in our recovery as demonstrated by today’s results. After prolonged lockdowns in our two largest states of NSW and Victoria in 1H FY22, the retail sector has enjoyed a sustained rebound in retail sales and importantly, retailer confidence.”

The 1.6% or $233 million uplift in asset valuations for the six months to 30 June 2022 further demonstrates the resilient retail sector and the benefits of owning a diverse portfolio of assets. Notably, more than half of the valuation uplift was driven by income growth across a number of Vicinity’s flagship Premium, Outlet and Sub-regional centres.

New A-grade office space over four levels in the southern precinct of Box Hill Central is 100% leased to Hub Australia, expected to open in FY23

CBD asset valuations remained in line with 31 December 2021, reflecting steady leasing activity and improving re-leasing spreads, as sophisticated retailers consolidated store networks into Premium CBD centres. While the recovery is slower than the rest of the portfolio, the outlook for CBD retail is improving.

During FY22, Vicinity completed 1,378 leasing deals, 121 more deals than the prior year. After a moderation in leasing activity in January and February 2022, due to seasonality as well as the outbreak of Omicron, deal momentum accelerated with the number of deals completed in June 2022 being 49% higher than the number completed in June 2021.

Of all new leasing deals agreed in FY22, 71% were negotiated with fixed annual increases of 5% and cumulatively, 94% of all new deals were negotiated with fixed annual increases of at least 4%. The average lease tenure of new deals negotiated in FY22 extended to 5.1 years, from 4.3 years in FY21.

Vicinity leased 374 vacant stores in FY22, and occupancy was 98.3% at the end of June 2022, representing a slight increase versus the 98.2% reported at 30 June 2021.

In addition to fulfilling its obligations imposed by the SME Codes until their expiration in March 2022, Vicinity continued to support small businesses and other retail partners in categories and locations most impacted by the pandemic, such as Food & Beverage, Travel and CBD locations.

COVID-19 lease variation negotiations with non-SME retail tenants continued to focus on driving mutual value and leasing outcomes which support retail partners experiencing hardship, while also reflecting the quality of Vicinity’s assets.

The revitalised Mornington Central

On retail sales performance, Kelley said, “The Australian retail sector has benefitted from elevated household savings and an extremely tight employment market. Consumers continued to show confidence and capacity to spend while maintaining a strong preference for physical store shopping.”

Customers continued to shop with purpose in FY22. While visitation was below 2019 levels, the average spend per visit remained 1.3 times that recorded in 2019.

Higher spend per visit, combined with the introduction of on-trend retailers, and the particular success of luxury retail in Vicinity’s centres, supported total portfolio retail sales growth of 15.5% in 2H FY22 relative to the same period in 2019. Excluding CBDs, sales were 16.9% higher.

Despite four months of lockdown in 1H FY22, total portfolio moving annual turnover (MAT) was up 6.7%, with strong growth reported across mini majors and specialty stores. The key drivers were discretionary categories, including Jewellery, Apparel and Food Catering.

“While we are mindful of inflation, rising interest rates and increased building costs, we are still seeing positive retail sales trends in our centres, and we cautiously anticipate a soft landing for the Australian economy over the next 12 to 18 months. Our asset portfolio is diverse in terms of asset type, location and retail mix which, as demonstrated during the pandemic, provides resilience to a range of possible outcomes,” said Kelley.

“I am pleased to report that continued execution of our Retailer First program has been well received, with Vicinity increasingly being recognised as a partner of choice for growth-oriented retailers. Our national retailers ranked us number 1 on the retailer net promoter score, and number 2 overall across 10 retail landlords. As part of our Retailer First program, we have increased our focus on building strong, long-term relationships with our retailers, enhancing tenant experiences, and driving higher tenant retention.”

Vicinity has commenced the fresh food and mini-majors precincts at Bankstown Central

During the year, Vicinity invested in a number of retail and mixed-use projects, including:

  • Commenced Chadstone’s new Entertainment and Leisure precinct, expected to be complete by end of FY23
  • Remixed and upgraded the retail precinct in Box Hill Central South, including relocation of Coles from the northern site, the addition of new dual-frontage restaurants, a major ambience upgrade and reconfiguration of the mall
  • Commenced the fresh food and mini-majors precincts at Bankstown Central
  • Completed modernisation program with extensive ambience upgrades at Mornington Central, including a new Woolworths and mix of specialty retailers

Mixed-use development projects in delivery during FY22 included:

  • Upgrade and refurbishment of the Chadstone Place office, which is expected to complete in 4Q FY23, ahead of Officeworks’ head office relocation to Chadstone
  • New A-grade office space over four levels in the southern precinct of Box Hill Central which is 100% leased to Hub Australia, expected to open in 3Q FY23

Kelley said, “Our development pipeline represents an exciting phase of growth for Vicinity. Importantly, given we own the land parcels earmarked for retail and mixed-use development, the pipeline is able to be flexed up and down in order to preserve the risk and return parameters of projects and the pace of capital deployment, thereby maintaining our strong balance sheet, credit ratings and disciplined approach to paying distributions.”

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