Rising Costs and Tight Retail Supply Pose Challenges Despite Vicinity’s Strong FY25

• Statutory net profit doubles to $1,004.6 million in FY25
• 3.7% comparable net property income growth led by premium assets
• Acquisition of 50% stake in Lakeside Joondalup for $420 million
• 99.5% portfolio occupancy and positive leasing spread of +2.5%
• FY26 FFO growth guidance of 2.0%-3.5% with ongoing major developments

Strong Financial Performance Amid Strategic Repositioning

Vicinity Centres has delivered a standout FY25 result, with statutory net profit after tax soaring to $1,004.6 million, nearly doubling from the previous year’s $547.1 million. This impressive growth was underpinned by a 3.7% increase in comparable net property income (NPI), driven predominantly by the company’s premium retail assets such as Chadstone, Outlet Centres, and CBD centres.

The company’s funds from operations (FFO) rose modestly by 1.4%, or 3.6% when adjusted for one-off items and development-related rent losses, reflecting solid operational momentum despite a tightening retail supply environment. Portfolio occupancy remained exceptionally high at 99.5%, supported by a positive leasing spread of 2.5%, signaling strong tenant demand and effective asset management.

Portfolio Transformation and Capital Management

Vicinity’s strategic focus on premium retail assets is evident in its portfolio repositioning since June 2022, with premium assets now representing 51% of the portfolio by value. This shift was bolstered by the acquisition of a 50% interest in Lakeside Joondalup, Western Australia, for $420 million, funded through divestments of non-strategic assets totaling $457 million.

Key developments completed during FY25 include the opening of Chadstone’s Market Pavilion and the One Middle Road office tower, which have already contributed to increased foot traffic and sales. Meanwhile, the redevelopment of Chatswood Chase is progressing, with pre-leasing largely complete and staged openings planned through FY26, positioning it as Northern Sydney’s luxury fashion capital.

Robust Leasing and Retail Sales Growth

Leasing metrics further underscore Vicinity’s strong operational performance. The specialty occupancy cost ratio remains attractive at 14.1%, below pre-COVID levels, indicating room for continued rent growth. Retail sales across the portfolio grew by 2.8% for FY25, accelerating to 3.8% in the second half, with standout categories including leisure (+13.8%), jewellery (+8.2%), and fresh food (+7.7%). This sales momentum is supported by favourable macroeconomic factors such as population growth, a tight employment market, and recent interest rate cuts.

Outlook and Guidance for FY26

Looking ahead, Vicinity Centres has provided guidance for FY26 FFO growth of 2.0% to 3.5%, supported by expected comparable NPI growth of around 3%, excluding new taxes and levies. Development-related rent losses are anticipated to decline, and capital expenditure is forecast to increase to between $400 million and $450 million, reflecting ongoing investment in premium assets and mixed-use projects.

The company’s disciplined capital management continues, with a gearing ratio of 26.6% and ample liquidity to cover debt maturities and development commitments. The successful execution of its investment strategy, including the upcoming Galleria redevelopment and the transformation of Chatswood Chase, positions Vicinity well to capitalise on the structural undersupply of retail space and strengthening shopper sentiment.

Bottom Line?

Vicinity Centres’ FY25 results confirm the strength of its premium-focused strategy, setting a confident tone for sustained growth amid evolving retail dynamics.

Questions in the middle?

• How will ongoing developments like Chatswood Chase impact income growth beyond FY26?
• What risks could arise from potential changes in retail consumer behaviour or economic conditions?
• How might tightening retail supply and rising operating expenses affect future valuation gains?