Vicinity Centres share price slides despite $1.2b FY22 profit

The market is bidding down the REIT's stock despite its seemingly strong full year earnings.

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Key points

  • The Vicinity share price is in the red on Wednesday, slipping 2% to trade at $2.01 
  • That's despite the REIT's after-tax profit improving by $1.5 billion in financial year 2022 
  • The company's CEO Grant Kelley said its results "highlight strong operational and financial execution in a recovering retail landscape" 

The Vicinity Centres (ASX: VCX) share price is falling after the company revealed a $1.2 billion after-tax profit for financial year 2022.

After opening slightly lower at $2.04, the stock plunged to reach $2.01 at the time of writing. That marks a 1.95% tumble.

Vicinity Centres share price slips despite $1.5b profit jump

Here are the key takeaways from the S&P/ASX 200 Index (ASX: XJO) shopping centre-focused real estate investment trust (REIT)'s full year earnings:

  • Net profit after tax (NPAT) of $1.215 billion – up from financial year 2021's $258 million loss
  • Funds from operations (FFO) came to $598 million, or 13.1 cents per share – a 7.1% improvement
  • Net tangible assets (NTA) per security reached $2.36 – a 10.3% rise
  • Net property valuation gain of $554 million
  • Occupancy rate increased to 98.3%
  • 5.7 cents per share final dividend, bringing full year dividends to 10.4 cents per share

Vicinity Centres' FFO growth was driven by an 8% lift in net property income, which came in at $803 million.

That mostly reflects sustained strength of retail and improved negotiation outcomes with retailers. It was partially offset by higher interest costs.

The company's gearing of 25.1% is still at the lower end of its target range. Vicinity's weighted average cost of debt for financial year 2022 was slightly higher at 4% and the weighted average maturity was 4.3 years based on limits and 4.8 years based on drawn debt.

What else happened in FY22?

The major news from Vicinity Centres last financial year was its acquisition of a 50% stake in the Gold Coast's Harbour Town Premium Outlets. The $358 million acquisition saw the Vicinity Centres share price dip 0.3%.

On top of that, Vicinity completed its inaugural green bond in June, issuing $300 million of six-year notes. Despite volatility in debt markets, demand from investors saw an oversubscribed issuance at attractive pricing.

What did management say?

Vicinity CEO and managing director Grant Kelley commented on the company's earnings, saying:

Our results highlight strong operational and financial execution in a recovering retail landscape.

While we are mindful of inflation, rising interest rates, and increased building costs, we are still seeing positive retail sales trends in our centres.

Vicinity is also relatively well positioned for a rising interest rate environment given our continued prudence with respect to fixed debt costs. Vicinity concluded financial year 2022 with approximately 85% of its drawn debt hedged and approximately 80% of our drawn debt is hedged over financial year 2023, with a very modest step down in financial year 2024.

What's next?

Vicinity Centres also revealed guidance for financial year 2023 today.

It expects to post between 13 cents and 13.6 cents of FFO per share this fiscal year. It also predicts its adjusted FFO per share will come in between 10.9 cents and 11.5 cents. Its full year dividends will likely be within 95% and 100% of adjusted FFO.

The company is currently transitioning from planning to execution of its $2.9 billion development pipeline. That comprises of projects expected to be completed between financial year 2023 and financial year 2027.

Vicinity expects its development capital expenditure to increase to around $200 million to $250 million this fiscal year and average at approximately $300 million to $400 million each year over the medium term.

Vicinity Centre share price snapshot

Today's fall included, the Vicinity share price is 13.5% higher than it was at the start of 2022.

It's also 28% higher than it was this time last year.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has dumped 6% so far this year and 6% over the last 12 months.

Motley Fool contributor Brooke Cooper 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 Scott Phillips.

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