This article is from the Australian Property Journal archive
VICINITY Centres saw elevated sales growth in the first half, the result of improving visitation, increased dwell times and higher spend per visit than pre-COVID levels, and is looking to add more brands to its outperforming luxury category.
New chief executive officer and managing director Peter Huddle, who took over the role at Australia’s second-largest shopping centre landlord following the controversial exit of Grant Kelley during the first half of FY23, said luxury retail and apparel and footwear, particularly at its outlet centres, remain amongst the strongest performing categories.
“Our long-term investment strategy is focused on bolstering our market leadership position in these growing segments.”
Retail sales growth in the first half of FY23 was 20.0%, or 6.3% on a compound annual growth rate, compared to the same period of FY20.
Vicinity’s luxury category now represents more than $1 billion in sales annually, amounting to 11% of mini majors and specialty sales. In the first half of FY23, luxury retail sales have grown by 55.8% or 15.9% on a CAGR basis, compared to the first half of FY20.
“Our growth in luxury is the result of our deliberate investment strategy to enhance our luxury landlord credentials. Pleasingly, existing luxury brands are demanding more space to extend and elevate their product offerings and we have a pipeline of potential new brands to bring to our premium centres in the short to medium term,” Huddle said.
Majors delivered 14.6% growth during the period (representing a CAGR of 4.6%) and mini-majors and specialties combined delivered 23.6% growth (a CAGR of 7.3%).
Vicinity – which co-owns Australia’s largest mall, Chadstone, in Melbourne, and Emporium Melbourne in the CBD – posted increased interim funds from operations of $357.1 million, up from $287.7 million, or 7.84c per security, up from 6.32c per security. This was driven by a 20.5% uplift in net property income to $459.6 million, as well as continued sales growth and a focus on collecting prior period billings.
Statutory net profit after tax was $176.3 million, down from $650.2 million a year earlier, which included a net property valuation loss of $109.2 million. That resulted in a softening of the portfolio weight average capitalisation rate by three basis points. Vicinity said this was partially offset by negotiating more long-term deals with fixed annual growth rates at improving leasing spreads supporting longer-term income growth.
“The reduction in regional and larger sub-regional asset valuations reflected transactional evidence indicating softer valuation metrics. Meanwhile, Vicinity’s neighbourhood and smaller sub-regional centres experienced steady income growth, which partly offset higher capitalisation rates.”
Vicinity’s strong outlet portfolio performance supported current capitalisation rates, and steady valuation improvements were driven by continued income growth resulting from buoyant leasing activity.
Chadstone received a $53.2 million valuation uplift during the period, driven by income growth and a tightening of its capitalisation rate to 3.75%.
CBD asset valuations remained broadly in line with the prior period.
Vicinity completed 833 leasing deals during the period, 190 more deals than the prior corresponding period and 43% higher than pre-COVID levels. Leasing spreads continued to show positive momentum, with a -0.1% leasing spread relative to -4.8% reported over FY22 and -6.4% for 1H FY22. High single-digit spreads were achieved for Chadstone and DFOs.
Vicinity revised its FY23 guidance. FFO per security and AFFO per security are now expected to be in the range of 14.0 to 14.6c and 11.8 to 12.4c, respectively.
Vicinity has just received the green light from Brisbane City Council for the $750 transformation of Buranda Village in Woolloongabba. At Chadstone, a new entertainment and leisure precinct will open in early March, while construction of an office tower and fresh food dining precinct has commenced.
A new mini majors precinct and fresh food precinct at Bankstown Central was completed in the half, while a new Coles-anchored retail and dining precinct that opened at Box Hill South is fully leased. The construction of a new A-grade office space over multiple levels in Box Hill South, which is fully leased to Hub Australia, will open in March.
