Sky high profits: Vicinity Centres (ASX:VCX) share price rockets 9% following half-year results

Vicinity Centres carries a year on year change of $1 billion through to the bottom line.

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Key points

  • Vicinity Centres posted its half-year results before the open today
  • The company came in with a strong performance at the bottom line, growing NPAT by $1 billion and a substantial increase to FFO
  • In the past 12 months Vicinity Centres has held gains and is up 14% on the year

Shares in vertically integrated Australian real estate investment trust (REIT) Vicinity Centres (ASX: VCX) are rocketing today. It follows the company announcing its results for the six months ended 31 December 2021.

Vicinity Centres share price is climbing at the open on Wednesday, up 9.23% from yesterday's close at $1.83.

Vicinity Centres back in the money

The second-largest listed manager of Australian retail property advised on a number of investment highlights today:

  • Statutory net profit after tax (NPAT) of $650.2 million, up $1.04 billion from statutory net loss after tax of $394.1 million in 1H FY21
  • Funds from operations (FFO) of $287.7 million or 6.32 cents per share, compared to 1H FY21 result of $267.1 million or 5.87 cents per share
  • Interim distribution of 4.7 cents per share, reflecting a payout ratio of 84% of adjusted FFO (AFFO) – up from 62%
  • Strong balance sheet maintained, with low gearing of 26.3% and liquidity of $1.8 billion
  • FY22 FFO per security expected to be in the range of 11.8 cents to 12.6 cents
  • AFFO per security expected to be in the range of 9.5 cents to 10.3 cents

What else happened this quarter for Vicinity?

The hallmark of Vicinity's results this half was a $1 billion gain in statutory NPAT of $650.2 million, up from a loss of $320 million this time last year.

This result was underpinned by FFO of $287.7 million and "a non-cash net property valuation gain of $320.1 million."

Even with the pandemic, Vicinity says, its Australian operations grew almost 8% in FFO year over year.

During the half, Vicinity completed 643 leasing deals, resulting in an average spread of -6.4%. This is a big jump on the 542 deals at a spread of -12.6% in 1H FY21.

It also leased 201 vacant stores during the half. As such, portfolio performance ensured that occupancy was maintained at 98.2% at the end of December 2021.

Not only that, collection of gross rental billings averaged 80% for the period, up sequentially on the previous quarter, according to the release.

Total portfolio retail sales increased by 7%, curiously a reflection of strong growth in Victoria at an increase of 17%. In states that didn't feel much impact of COVID-19, growth was 4.5%.

"Given that NSW was in lockdown for a higher proportion of 2021 versus 2020, MAT retail sales were down 5.1%," the company noted.

Management commentary

Speaking on the announcement, Vicinity CEO and managing director Grant Kelley said:

The first half of FY22 was another challenging period for Vicinity, our retail partners and the retail sector more broadly. However, despite continued COVID-related disruptions and a greater proportion of our assets being in lockdown this period, our disciplined approach to cash collection and retailer support, together with higher than anticipated tenant retention and resilient ancillary income underpinned our significantly improved result.

What's next for Vicinity?

The release notes that Vicinity expects FY22 FFO per security to be in the range of 11.8 cents to 12.6 cents. While AFFO is expected to be in the range of 9.5 cents to 10.3 cents.

Vicinity is targeting a full-year distribution payout range of 95%-100% of AFFO, according to the guidance figures posted today.

"In summary, today's result and our FY22 guidance are testament to the high-performing and resilient team we have at Vicinity and the strength of our asset portfolio and retail partnerships," Kelly concluded.

Vicinity Centres share price snapshot

In the past 12 months Vicinity Centres has held gains, up 14.33% on the year, based on the current price. With today's boom in the Vicinity share price, year to date the REIT is up 8.58%.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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