Unlike the glum news from Dexus, the office tower and industrial property group, Vicinity Centres, the shopping centre group, was all upbeat on Tuesday about a big new centre deal in WA. However, the company was more circumspect about the 2023-24 results and a lower payout to investors.
The group experienced a small hit from falling property values and eased rents, leading to a slight decline in the distribution for the final six months and full year. Nevertheless, the company revealed its continued focus on growth rather than retrenchment.
Vicinity is well-acquainted with challenging conditions. With weak property values, high interest rates, and reluctant consumers, the company has faced similar pressures in the past. As Centro, a former incarnation, it nearly collapsed during and after the Global Financial Crisis but has since recovered.
In addition to announcing weaker 2023-24 results, Vicinity disclosed the acquisition of a 50% stake in Western Australia’s Lakeside Joondalup for $420 million. While it purchased the remaining 49% stake in Chatswood Chase in Sydney during the December half, it also sold other assets to manage debt levels.
This is the largest retail deal nationally for 2024, with Vicinity aiming to expand in the WA market despite a downturn in the mining sector for commodities like nickel, copper, iron ore, lithium, and homebuilding. Gold and gas remain exceptions.
Vicinity described Lakeside Joondalup, located on Perth’s northside, as a "strategic acquisition target for some time." Along with the acquisition, the company secured property management and retail development management rights for the centre, which it characterises as a "premium, fortress-style centre located in one of Perth’s principal activity centres with a large and growing population and achieving almost $800 million in annual retail sales."
Vicinity expressed optimism about Lakeside Joondalup's growth potential and its accretive impact on earnings in the first year. The purchase brings Vicinity's total interest in WA centres to 11.
While the company's growth strategy is bullish, the results hinted at potential challenges if the current retail downturn persists into 2024-25.
The deal overshadowed Vicinity's 2023-24 full-year profit results, which dipped slightly operationally despite near-full occupancy rates across its centres.
The group reported a statutory net profit after tax of $547.1 million, up from $271.5 million in FY23. However, funds from operations declined by 2.9% to $664.6 million following a 1.3% fall in net operating income to $888.4 million.
Despite occupancy rising to 99.3% from 98.8% a year earlier, rental income decreased. Funds from Operations totaled 14.6 cents per security, while the adjusted figure was lower at 12.3 cents. Both exceeded the updated guidance issued in February.
The distribution for the year was reduced slightly to 11.75 cents per security, a less-than-impressive result considering the solid funds from operations outcome. Notably, the final distribution of 5.90 cents per security was down 5.6% from 6.25 cents per security in the previous year.
Vicinity stated that the acquisition of Lakeside Joondalup, the upcoming redevelopment of Galleria, and the divestment of non-strategic assets in Western Australia align with its strategy to recycle and redeploy capital for portfolio strengthening. The company emphasised its strong balance sheet and disciplined capital allocation as competitive advantages.
