Vicinity Earnings down -20%

17 February 2021

Vicinity Centres today announced its results for the half-year ended 31 December 2020, with earnings down -20% and a statutory net loss after tax of -$394.1m, down $-637m on the prior corresponding period.

This loss is comprised primarily of FFO of $267.1 million, a net property valuation loss of $572.4 million and non-cash mark-to-market and foreign exchange movements.

The FFO result was significantly impacted by the continued effects of COVID-19, particularly rental waivers and provisions for unpaid rent, which were offset partly by the benefits of lower interest expense and operational cost savings.

Distribution per security of 3.4 cents was declared for 1H21, compared to 7.7 cents in the prior corresponding period. The reduced distribution payout ratio of 62.4% was conservatively positioned in light of continued uncertainty around FY21 full-year earnings and COVID-19 impacts. Vicinity have avoided providing any guidance on earnings for the year ahead.

Mr Grant Kelley, CEO and Managing Director, said: “Although the pandemic led to significant financial and operational challenges, Vicinity is well-positioned to benefit from improving economic conditions, with consumer and business confidence now approximating pre-pandemic levels, fuelled by fiscal stimulus measures, record low interest rates and robust COVID management nationally.”


  • First half operational and financial performance materially impacted by COVID-19
    • Funds from operations (FFO)1 of $267.1m or 5.87cps (1H20: $337.0m or 8.95cps)
    • Distribution of 3.4cps, reflecting a payout ratio of 62.4% of adjusted FFO (AFFO) (1H20: 7.7cps, payout ratio 94.9%)
    • Statutory net loss after tax of $394.1m (1H20: statutory net profit after tax of $242.8m)
  • Strong balance sheet maintained, with low gearing of 24.5% and liquidity of $2.4b
  • Two consecutive quarters of positive sales growth (ex-CBDs and Victoria)
  • Cash collection rate increased to 72% of gross rental billings or 90% of billings net of waivers
  • COVIDSafe plans implemented across all Vicinity assets
  • Accelerated planning progress across multiple mixed-use and retail development projects
  • One of only two Australian property companies recognised in CDP’s global Climate A-list
  • Due to ongoing uncertainty, full-year earnings guidance cannot be provided for FY21.

Mr Grant Kelley, said, “While the retail industry is showing continuing signs of recovery, we recognise that uncertainty remains, with the potential for further COVID-19 restrictions, the unwinding of temporary government support measures, and a prolonged recovery in CBDs on the eastern seaboard.”

“Our focus therefore remains on maintaining a robust capital structure. Vicinity’s balance sheet remains strong with gearing of 24.5% and we have maintained our investment grade credit ratings of A/stable (S&P) and A2/negative (Moody’s). We have available liquidity of $2.4 billion, with only $150 million of expiring debt until FY23, and a weighted average debt maturity of 4.7 years.”

Retail activity returns as COVID-19 impacts reduce

Mr Kelley said: “COVID-19 has disrupted our industry and Vicinity’s operations. The majority of our Melbourne retailers were mandated to close for half the period, and our CBD centres have been impacted by both a slow return of office workers and limited tourism due to border closures. Pleasingly, outside these markets, or where COVID-19 concerns are low, customers have returned to shopping centres. Across our portfolio, this strong customer visitation has been reflected in two consecutive quarters of positive sales growth (ex-CBDs and Victoria).”

As the chart below shows, customer visitation (excluding CBDs and Victoria) is at 93.4% of the pre-covid levels. The impacts however on the CBD Centre continue to be problematic for the group as tourism and CBD workers continue to be absent.

The impacts on the ability for tenants to pay rent is obvious. Rental waivers and deferrals have been significant but largely contained to 2020. The majority of assistance has been in the form of short term lease variations and rental waivers aimed at retaining where possible operating tenants and avoiding mass vacancy.

Occupancy remains at 98% however new leasing deals are being struck at -12.6% leasing spreads on average. The DFO Portfolio has seen positive leasing spreads of 6% with the core portfolio seeing rentals drop by as much as -17%.

Multiple mixed-use and retail projects progressed

Key mixed-use and retail development opportunities that have progressed include projects at Chadstone, Box Hill Central, Victoria Gardens, Sunshine Marketplace and Bayside in Victoria, and Bankstown Central and Chatswood Chase Sydney in New South Wales.

In relation to developments, Mr Kelley stated: “In line with governments’ desire to drive economic activity, we have accelerated our planning work on multiple mixed-use and retail projects. We are focused on derisking our projects prior to commencing construction – including gaining necessary development approvals, locking in appropriate pre-leasing, partnering with other property groups and phasing spend over different stages in line with market demand.

“Ahead of several of our major mixed-use developments, we are also planning a number of small retail expansion and revitalisation projects to enhance the customer experience significantly, prior to developing additional uses on site.”

Summary and guidance

Mr Kelley said: “2020 was a very challenging year for Australia, but we are cautiously optimistic that a retail recovery is gaining momentum. Localised outbreaks of COVID-19 are being well managed, governments are providing significant encouragement of economic activity, and consumer sentiment is just off 10-year highs.

“Despite the improvement in trading conditions there remains uncertainty, particularly due to the ongoing effects of the pandemic. As such, Vicinity cannot provide FY21 full year earnings guidance as it would not be reliable. Vicinity will continue to monitor conditions and provide further updates as appropriate. Vicinity is targeting a distribution payout ratio of 95% to 100% of AFFO for the full year.”

Our Views

Vicinity are not on our recommend list.

The group are facing significant rental declines which will continue to flow to decline valuations and lower NTAs.

The Group have flagged the need for additional cap ex to support “revitalisation” projects which is code for incentives and other capital works required to deal with re-mixing the Centres.