Company Reports

Vicinity's fiscal 2026 adjusted funds from operations increased 4% to AUD 13 cents per security. It paid out 95% of AFFO. Management guidance is for fiscal 2027 AFFO growth of about 6%.

Vicinity Centres is repositioning to “fortress-style” assets—one-stop destination shopping centers that are located in large population catchments. In recent years, the group has been actively developing and acquiring large premium assets, while divesting smaller regional or neighborhood malls. Notable recent acquisitions include a 50% stake in Perth’s Lakeside Joondalup, the remaining 49% in Sydney’s Chatswood Chase, and DFO Eastern Creek in Sydney. The most valuable asset Vicinity owns is Chadstone in Melbourne, Australia’s largest and highest turnover shopping center, which accounts for almost a quarter of the total portfolio value. City centers make up around 15%, of which the best known are Sydney’s Queen Victoria Building, The Strand Arcade, and The Galeries. Vicinity also holds several direct factory outlet centers, which specialize in selling excess or previous seasons’ stocks at discounted prices.

Vicinity Centres is repositioning to “fortress style” assets – one-stop destination shopping centers that are located in large population catchments. In recent years, the group has been actively developing and acquiring large premium assets, while divesting smaller regional or neighborhood malls. Notable recent acquisitions include a 50% stake in Perth’s Lakeside Joondalup and the remaining 49% in Sydney’s Chatswood Chase. The most valuable asset Vicinity owns is Chadstone in Melbourne, Australia’s largest and highest turnover shopping center, which accounts for almost a quarter of the total portfolio value. City centers make up around 15%, of which the best known are Sydney’s Queen Victoria Building, The Strand Arcade, and The Galeries. Vicinity also holds several direct factory outlet centers, which specialize in selling excess or previous seasons’ stocks at discounted prices.

Vicinity saw solid retail sales in the March quarter. Total sales turnover grew by 3% year on year. Excluding luxury retail, which moderated in March amid higher living costs, sales increased 4%. Management reaffirmed guidance, but the broader consumer mood tells a gloomier story.

Vicinity Centres is repositioning to “fortress style” assets – one-stop destination shopping centers that are located in large population catchments. In recent years, the group has been actively developing and acquiring large premium assets, while divesting smaller regional or neighborhood malls. Notable recent acquisitions include a 50% stake in Perth’s Lakeside Joondalup and the remaining 49% in Sydney’s Chatswood Chase. The most valuable asset Vicinity owns is Chadstone in Melbourne, Australia’s largest and highest turnover shopping center, which accounts for almost a quarter of the total portfolio value. City centers make up around 15%, of which the best known are Sydney’s Queen Victoria Building, The Strand Arcade, and The Galeries. Vicinity also holds several direct factory outlet centers, which specialize in selling excess or previous seasons’ stocks at discounted prices.

Vicinity Centres' adjusted funds from operations rose 1% year on year to AUD 7.0 cents per security. Management now expects full-year AFFO to land at the top end of the AUD 12.8 cps-AUD 13.0 cps guided range, equivalent to a 2%-3% increase from last year.

Australian consumers are in a spending frenzy. According to the latest release from the Australian Bureau of Statistics, household spending rose more than 1% in October relative to the prior month, the strongest monthly gain in nearly two years.

Vicinity Centres is repositioning to “fortress style” assets – one-stop destination shopping centers that are located in large population catchments. In recent years, the group has been actively developing and acquiring large premium assets, while divesting smaller regional or neighborhood malls. Notable recent acquisitions include a 50% stake in Perth’s Lakeside Joondalup, and the remaining 49% in Sydney’s Chatswood Chase. The most valuable asset Vicinity owns is Chadstone in Melbourne, Australia’s largest and highest turnover shopping center, which accounts for almost a quarter of the total portfolio value. City centers make up around 15%, of which the best known are Sydney’s Queen Victoria Building, The Strand Arcade, and The Galeries. Vicinity also holds several direct factory outlet centers, which specialize in selling excess or previous seasons’ stocks at discounted prices.

Vicinity's fiscal 2025 funds from operations rose slightly to AUD 14.8 cents per security. Tenant demand and retail sales were solid, and management anticipated the growth momentum to continue. Distributions of AUD 12.0 cents were up 2% year on year.

Vicinity Centres is repositioning to “fortress style” assets – one-stop destination shopping centers that are located in large population catchments. In recent years, the group has been actively developing and acquiring large premium assets, while divesting smaller regional or neighborhood malls. Notable recent acquisitions include a 50% stake in Perth’s Lakeside Joondalup, and the remaining 49% in Sydney’s Chatswood Chase. The most valuable asset Vicinity owns is Chadstone in Melbourne, Australia’s largest and highest turnover shopping center, which accounts for almost a quarter of the total portfolio value. City centers make up around 15%, of which the best known are Sydney’s Queen Victoria Building, The Strand Arcade, and The Galeries. Vicinity also holds several direct factory outlet centers, which specialize in selling excess or previous seasons’ stocks at discounted prices.

We transfer coverage of Vicinity Centres, the owner of some of Australia's most iconic shopping centers, like Sydney's Queen Victoria Building and Melbourne's Chadstone.

The real estate sector is not immune to the potential economic impact of US tariffs. There is growing uncertainty as the likelihood of slower Australian gross domestic product growth mounts.

Vicinity Centres’ first-half funds from operations of AUD 7.56 cents per security and adjusted FFO of AUD 6.98 cents per security met our expectations. Retailers’ performance was solid, with overall portfolio sales growing 2% in the past six months. Leasing demand remained strong, with near-full occupancy. As of December 2024, re-leasing spreads—the rent difference between new and expiring leases—were 4%, and new leases maintained average annual rent escalators of 5%.

Vicinity Centres’ portfolio includes a wide variety of Australian retail property assets. Its largest asset is 50% ownership of Chadstone in Melbourne, which represents about AUD 3 billion of the AUD 15 billion portfolio at the end of December 2024. Central business district assets make up about 15% of the portfolio, including Sydney’s Queen Victoria Building, Strand Arcade, The Galeries, Brisbane’s QueensPlaza and Uptown, and Melbourne’s Myer Bourke Street and Emporium. Vicinity also owns factory outlet centers and suburban and country shopping centers, such as Armidale and Warriewood in Sydney, Buranda and Gympie in Queensland, Box Hill and Broadmeadows in Melbourne, and Mandurah and Rockingham in Western Australia.

Vicinity’s fiscal 2025 first-quarter trading update met our expectations. Despite higher interest rates and sticky inflation affecting customers’ discretionary income, retail sales are broadly flat and tenant demand remains strong. Its portfolio maintained near-full occupancy in the first quarter and Vicinity was able to increase rents by 3% on expiring leases. Tenants’ willingness to pay higher rents is largely underpinned by resilient store sales. Portfolio moving average turnover, a measure of tenants’ total sales revenue, grew slightly year on year. While sales in apparel and footwear, jewelry, and homeware softened as cost-of-living pressure weighed, this was offset by robust consumer demand in food retail, food catering, and leisure.

Vicinity Centres’ portfolio includes a wide variety of Australian retail property assets. Its largest asset is 50% ownership of Chadstone in Melbourne, which represents about AUD 3 billion of the AUD 15 billion portfolio at the end of June 2024. Central business district assets make up about 15% of the portfolio, including Sydney’s Queen Victoria Building, Strand Arcade, The Galleries, Brisbane’s QueensPlaza and Uptown, and Melbourne’s Myer Bourke Street and Emporium. Vicinity also owns factory outlet centers and suburban and country shopping centers, such as Carlingford and Warriewood in Sydney, Buranda and Gympie in Queensland, Mornington and Broadmeadows in Melbourne, and WA centers in Karratha, Mandurah, and Rockingham.

No-moat Vicinity Centres reported funds from operations of AUD 14.6 cents per security, down 3% year on year, largely due to lower property income and higher interest costs. The result was 1% above our forecast and the top of the guidance range. Vicinity will pay a final distribution of AUD 5.9 cents per security in September, taking total fiscal 2024 distributions to AUD 11.75 cents, down 2%. Guidance was also better than we expected. We now forecast fiscal 2025 FFO per security of AUD 14.6 cents per security and distributions of AUD 12.4 cents per security, both toward the lower end of the guided ranges. We had previously forecast small reductions in both.

We maintain our fair value estimate of AUD 2.15 per security for no-moat-rated Vicinity Centres following the transition of coverage to a new analyst. We think the REIT is in good shape to withstand a potential retail slowdown. Portfolio occupancy remains high at 99.1%. Admittedly, its average lease is only 3.6 years, compared with 6.8 years at no-moat Scentre Group—specialty tenants only—and 5.3 years at Region Group, though the latter is more convenience-focused than Vicinity. However, we’re not overly concerned because the shorter lease length is partly a function of development projects and some shorter leases signed during the pandemic. New leases signed during the first half of fiscal 2024 averaged a slightly longer 4.5 years, while Vicinity has achieved 2.6% increases on new leases so far this financial year.

Vicinity Centres’ portfolio includes a wide variety of Australian retail property assets. Its largest asset is 50% ownership of Chadstone in Melbourne, which represents about AUD 3 billion of the AUD 14 billion portfolio at the end of December 2023. Central business district assets make up about 15% of the portfolio, including Sydney’s Queen Victoria Building, Strand Arcade, The Galleries, Brisbane’s QueensPlaza and Uptown, and Melbourne’s Myer Bourke Street and Emporium. Vicinity also owns factory outlet centers and suburban and country shopping centers, such as Carlingford and Warriewood in Sydney, Buranda and Gympie in Queensland, Mornington and Broadmeadows in Melbourne, and WA centers in Karratha, Mandurah, and Rockingham.

Vicinity Centres’ portfolio includes a wide variety of Australian retail property assets. Its largest asset is Chadstone, which makes about AUD 3 billion of the AUD 14 billion portfolio. CBD assets make up about 15% of the portfolio, including Sydney’s QVB, Strand Arcade, The Galleries, Brisbane’s Queen’s Plaza and Myer Centre, Melbourne’s Myer Bourke St and Emporium. Vicinity also owns factory outlet centers, and suburban and country shopping centers, such as Carlingford and Warriewood in Sydney, Buranda and Gympie in Queensland, Mornington Central and Broadmeadows Central in Melbourne, and WA centers in Karratha, Mandurah, and Rockingham.