Vicinity keeps FY27 targets intact as leasing momentum strengthens

Vicinity holds guidance as leasing momentum continues

Vicinity Centres (ASX:VCX) has kept its FY27 earnings targets intact, giving investors an early test of whether its upgraded retail portfolio can deliver through a tougher rate and cost-of-living environment. Funds From Operations is still expected at 16.0 to 16.2 cents per security, while Adjusted Funds From Operations is forecast at 13.9 to 14.1 cents.

The first-quarter operating numbers provide support for that stance. Occupancy remained at 99.6%, leasing spreads reached 5.1%, and total portfolio sales grew 3.0% against a strong prior-year comparison that had increased 4.4%. Specialty stores and mini-majors performed better, with sales growth of 3.6% in the September quarter.

Vicinity said holdovers, excluding sites held for development, were stable at 1.6% of income, while the specialty occupancy cost ratio remained at 14.6%. More than 90% of income is contracted, according to the company, although management also flagged a cash rate at a 15-year high, unemployment at 4.7% and greater selectivity among global capital providers.

FY26 result built on portfolio repositioning

Those figures follow a stronger FY26, in which Funds From Operations rose to $700.1 million, or 15.21 cents per security. Comparable net property income increased 4.2%, the full-year distribution reached 12.40 cents per security and net tangible assets rose 7.7%, or 19 cents per security, to $2.59.

Premium assets now account for approximately 67% of portfolio value on a pro forma basis, compared with 51% four years ago. Vicinity added DFO Eastern Creek and acquired the remaining interest in Uptown during FY26, while its $625 million Chatswood Chase transformation is expected to generate more than $250 million in development profit without adding retail floorspace. That profit estimate sits alongside the earlier Chatswood development analysis, which highlighted how changes in valuation assumptions could materially affect project returns.

Galleria opening leads the development pipeline

The first stage of Vicinity’s $240 million Galleria redevelopment in Morley, Perth, is scheduled to open on 5 November. A refurbished Myer and about 60 retailers are due to trade first, with Hoyts, Coles and a new entertainment and dining precinct expected to follow before Christmas. Vicinity said it has allocated funding to support trade stabilisation during FY27 and plans to report on the early trading period at its interim results in February.

Development applications have also been submitted for the Uptown redevelopment in Brisbane and a proposed residential project adjoining Chatswood Chase. Neither project has yet received approval. Vicinity said it intends to retain flexibility over the capital structure and timing of delivery at Chatswood Chase, particularly in light of recent changes in Australia’s residential market.

Chairman transition arrives with board departures

The AGM marked the retirement of chairman Trevor Gerber and director Tim Hammon. Patrick Allaway, previously named as chair-elect in the planned chairman succession, now takes over the chair transition after Gerber’s tenure spanning the portfolio repositioning program and the COVID-19 period.

Gerber’s departure comes as Vicinity presents itself as a higher-quality, lower-geared retail property platform. Pro forma gearing stood at 26.1% in the AGM materials, with management reiterating that keeping gearing towards the lower end of its target range and maintaining hedging discipline would remain central to capital management.

The immediate question is less whether Vicinity can point to strong operating metrics than whether those metrics convert into the promised earnings inflection. Galleria’s opening, the first full-year contribution from Chatswood Chase and decisions on Uptown and residential development approvals will provide the next evidence.