Mall owner still in the vicinity of confident

Vicinity Centres, the country’s second biggest shopping mall group, has reaffirmed its confidence in the Australian consumer in its updated guidance for the 2021-22 June 30 financial year.

At a time when a string of retailers have been issuing mixed trading updates (weak from Mosaic Brands, solid from The Reject Shop), Vicinity also released updated its asset valuations by a total of more than half a billion dollars for the full year and expressed confidence in the health of current trading conditions.

Vicinity told the ASX that it now expects Funds From Operations (‘FFO’) for the 2021-22 year “to be at or above 12.6 cents per security and Adjusted Funds From Operations (‘AFFO’) to be at or above 10.3 cents per security”.

The previous FFO estimate was a range of 11.8 cents to 12.6 cents a security, so the improvement looks like being more than 7%, which is just above the headline rate for consumer price inflation.

Investors liked the news and chased Vicinity shares more than 6% higher on Monday where they closed at $1.85. That was in a negative market that closed down 0.6%.

Vicinity also said though it expects full-year distribution to be towards the lower end of its 95-100% of AFFO target range (That’s Adjusted Funds From Operations).

Vicinity said the announcement represents an upgrade to Vicinity’s previous FFO and AFFO guidance provided to the market as part of Vicinity’s FY22 interim results on February 16 and reaffirmed in its quarterly update on May 5.

“The guidance update largely reflects the sustained strength of retail sales and improved negotiation outcomes with retailers, and therefore stronger than expected cash collections in respect to current and prior years.

“While trading conditions continue to support Vicinity’s ongoing recovery from the pandemic, closing out COVID-lease variation negotiations and collecting current and outstanding rent remain key priorities in the lead up to 30 June 2022.

“Cash collections for the 2H FY22 to date have improved moderately to 91%3 of gross billings, from 89% of gross billings as at 28 April 20224,” Vicinity told the market.

CEO Grant Kelley said in the ASX statement that: “The updated FY22 earnings guidance demonstrates our continued focus on collecting current and overdue rent.”

“Furthermore, while we are mindful of the inflationary and rising interest rate environment, we continue to observe favourable trading conditions that support our recovery from the pandemic as well as our long-term growth agenda,” he added.

Vicinity also revealed that revaluations had added $245 million to the company’s June 30 book values for its centres.

That was smaller than the $309 million in higher valuations added at December 31, which was a rise of 2.2%.

The latest valuations are a smaller 1.7% lift for the six months to June.

Mr Kelley told the ASX that Vicinity was “pleased with the increase in preliminary asset valuations, noting especially that income growth across a number of our flagship Premium, Outlet and Sub-regional centres was a dominant driver of the valuations uplift.

“Our Regional and Sub Regional assets continued to benefit from strong transactional evidence, with pricing of third-party interests in assets where Vicinity is a joint owner delivering meaningful valuation gains.
“Outlet valuations continue to grow as income growth and tightening capitalisation rates highlight the ongoing strength of our Outlet portfolio and its resilience through cycles.