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Vicinity Lifts Full-Year Guidance Despite 474% Profit Dive

Shopping centres owner Vicinity has lifted its full year guidance despite half-year profits falling from $650.2 million to just $176.3 million.

These losses were driven by a net property valuation loss of $109.2 million, although the resilient retail sector, and a boost in FFO (funds from operations) has Vicinity presenting a cheery outlook.

The market seems to agree, with shares up 3.5 per cent to $2.08 this morning.

FFO jumped to $357.1 million, up from $287.7 million during the final half of 2021, driven by a 20.5 per cent uplift in property income, to $459.6 million.

As the retail climate returns to normal, Vicinity has seen improved cash collections, rental growth, and higher percentage rent.

“Continued sales growth and a persistent focus on collecting prior period billings resulted in a $25.1 million reversal of prior year waivers and provisions in 1H FY23,” the report reads.

“The Australian retail sector continues to enjoy elevated growth, despite near-term uncertainty, while the residual impact of the pandemic on Vicinity is now largely limited to the ongoing recovery of our CBD assets,” Vicinity CEO Peter Huddle said.

“From a consumer demand perspective, the Australian retail sector continues to be a benefactor of an extremely tight employment market and robust household income growth and savings rates.

“That said, we are mindful of the impact of rising interest rates and increased costs of living on Australian households in the near term and we expect the rate of retail sales growth to moderate in 2H FY23.”

FFO per security and AFFO per security are now expected to be in the range of 14.0 to 14.6 cents and 11.8 to 12.4 cents, respectively, which is “largely due to the $25.1 million reversal of prior year waivers and provisions.”

Vicinity expects its full year distribution payout to be towards the lower end of its target range of 95-100% of AFFO.

“Even when adjusting for the benefit from prior year waivers and provisions in the 1H FY23 result, our revised FFO per security guidance range for FY23 exceeds the original FY23 FFO guidance range announced to the market on 16 August 2022,” Huddle said.

“This outperformance reinforces the resilience of our operating and financial performance in the somewhat uncertain retail environment.”

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