One of Australia’s leading retail property groups, Vicinity Centre, might have recently recovered from the lockdown but now the retail space titan must contend with the economic slowdown and profits, reduced by 78% due to write-downs.

For 2023. Vicinity Centre, which manages a portfolio of roughly $24 billion in retail assets, was able to rebound with a 14.5% increase in earnings.

However, now Vicinity CEO Peter Huddle said 2024’s fiscal year outlook of profitability is murky due to inflation and rising rates.

Within Vicinity’s funds from operations (FFO), considered the industry’s standard earnings measure, the business increased up to $648 million but this amount, though impressive, only measures up to around 77% of pre-pandemic revenue.

Weighed against last year’s fall of 4.8%, Vicinity did do well on the leasing front improving 0.3% due to greater demand from premium outlet leaseholders.

“The team negotiated the highest number of leasing deals since facilities’ inception in 2015,” Huddle disclosed.

Partially due to leasing deals, Vicinity’s fiscal year 2023 performance did better than forecasted with full-year funds and distributions being 12¢ and operations 15¢ per security.

Despite these improvements, Vicinity’s property trust portfolio documented write-downs of $338.4 million for the year.

Additionally, its statutory net profit was cut by 78% to $271.5 million for its 2023 financial year, according to the Financial Times.

On the other hand, retail sales growth moderated in the fourth quarter despite going up for most of the year, which indicates that inflation and rising interest rates may ultimately be decelerating retail spending.

“The resilience of both consumer demand and retailer confidence is highly dependent on inflation returning to more normal levels and the interest rate cycle reaching its peak,” Huddle said.

Vicinity predicts to have lower distributions but Huddle is certain Vicinity can absorb market instability because of REIT de-risking its income in the 2023 fiscal year.

“FFO guidance range implies flat growth in FY 24,” he said. “Our operating metrics for comparable NPI [net property income] is expected to grow by 3% in FY24, and while we expect this to be offset by high-interest rate costs next year, it’s important to reinforce that our core business is strong.”

According to Citi analysts, the 2024 financial year guidance was widely aligned with consensus expectations.

However, its predicted that there will be a lag in retail sales over a number of categories in Q4 fiscal year 2024, UBS analysts said.