Vicinity updates FY22 earnings guidance and announces a $245m valuation gain

Vicinity Centre have updated its earnings guidance for the 12 months ending 30 June and reported a $245m valuation gain ahead of their June year end results.

Vicinity now expects FY22 Funds From Operations (‘FFO’) 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. Vicinity expects full-year distribution to be towards the lower end of its 95-100% of AFFO target range.

Today’s announcement represents an upgrade to Vicinity’s previous FFO and AFFO guidance provided to the market as part of Vicinity’s FY22 interim results announcement on 16 February 2022 and reaffirmed in its quarterly update (‘3Q FY22’) on 5 May 2022.

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% of gross billings, from 89% of gross billings as at 28 April 2022.

Mr Grant Kelley, CEO and Managing Director, said: “The updated FY22 earnings guidance today 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.”

Subject to Board assessment and external conditions, Vicinity’s full year distribution for the six months ending 30 June 2022 is expected to be announced together with Vicinity’s FY22 annual results in accordance on the 17th August.

Vicinity also announced preliminary 30 June 2022 asset valuations which indicate a $245 million, or 1.7%, uplift in book values (representing 5.4 cents per security) for the six months to 30 June 2022 and a modest tightening of the weighted average capitalisation rate to 5.31% from 5.35%.

Mr Kelley said: “We are 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.

“CBD asset valuations remained in line with 31 December 2021 reflecting resilient leasing activity and improving re-leasing spreads, as sophisticated retailers consolidate store networks into Premium CBD centres. With weekend visitation now at 85% of pre-COVID levels, we maintain our view that the outlook for CBD retail is improving, and we expect these centres to return to their former vibrancy over time.”

Independent valuations are being undertaken for 32 assets (56% of the portfolio by value), while the remaining 27 assets are subject to internal valuations.

Valuations at 30 June 2022 are subject to finalisation and audit and will be confirmed in Vicinity’s FY22 annual results on 17 August 2022.

Premium Members can find all Vicinity Articles, trading Analysis, Annual Reports and Presentations here

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