Shares in Vicinity Centres Re Ltd (ASX: VCX) are little known despite being in the ASX 100. I believe that they offer tremendous value for retail investors.
Vicinity was essentially created in late 2015, following the merger of the old CFS Retail Property and Centro property assets.
Despite having a share price that has gone backwards since then, merger synergies have gone entirely to plan. A mixture of divestments, acquisitions and development projects have seen total shareholder returns since then of 14.1% per annum. Over the period, NTA has risen 15.1% to 282c.
The group has also reduced its gearing by 3.3 points to 24.7%. This balance sheet strength has enabled Vicinity to recently buy back $230m of its own stock, at a 6% discount to NTA.
The record, therefore, is strong.
Occupancy rates are currently 99.5%. Understandably, the market is concerned with the Amazon threat, but companies like Vicinity are hardly standing still either in response to the threat. For example, it’s major redevelopment at Chadstone will include a 250 room 4-4.5 star hotel.
The group is also going up the value chain, for example swapping a 49% interest in Chatswood for three prestige Sydney CBD assets.
Vicinity intends to pay out 100% of its Funds from Operations (FFO) as dividends. At its AGM last week the company gave guidance that it expects FFO to be 18.0c to 18.2c. That’s equivalent to a net yield of 6.7%.
In terms of valuation relative to its peers, the buy case for Vicinity is strong. It trades at a discount to its NAV, compared to 7%-13% premiums for Scentre Group (ASX: SCG) and Shopping Centrs Austrls Prprty Gp Re Ltd (ASX: SCP). It’s 6.7% yield compares favourably t0 5.8% and 5.2% for Scentre and SCA.
For income-hungry investors I like the Australian retail property space. For all the gloom around, the best operators are still growing, not shrinking. At the current share price Vicinity is my pick of the bunch.
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Motley Fool Australia contributor James Middleweek has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.