Across the past week, Vicinity Centres (ASX: VCX) shares are up by 14.5%. Vicinity is also easily the most traded large-cap share this week on the entire ASX. Last Monday, the real estate investment trust (REIT) announced its intention to carry out an immediate share placement worth $1.2 billion to take pressure off its balance sheet. Eligible investors were able to participate at an 8.1% discount to the last close price of $1.61 on 29 May 2020.
It also plans an additional security placement for $200 million. Last Tuesday it followed this with an announcement that it would cancel its distribution payment for the 6 months to June 30 this year.
The balance sheet
The capital raising has had a large impact on the REIT’s balance sheet. Namely, it reduced the company’s gearing from 34.9% down to 26.6%. Net tangible assets per security (NTA) have reduced to $2.23 from $2.40 pre-placement. Lastly, the REIT is now sitting with cash and unused debt facilities valued at $2.6 billion.
This has clearly impressed investors who have piled into the share. It has also had an impact on several other REIT’s and real estate companies.
“Stay at home” orders and some forced closures have had a unique impact on Vicinity Centres. However, the company has announced that foot traffic is now 74% of the prior year, from a low of 50% in April 2020. Approximately 80% of stores across the portfolio are now trading, from a low of 42% in April 2020.
While revenue is down for this period as the REIT moves to help its retailers, it is taking a raft of cost control measures.
Most large-cap REIT’s on the ASX enjoyed share price gains during the week. At the time of writing this includes Mirvac Group (ASX: MGR), Scentre Group (ASX: SCG), Stockland Corporation Ltd (ASX: SGP) and GPT Group (ASX: GPT).
The case for Vicinity Centres
As is clear above, this REIT is very tightly managed and a good custodian of investors assets. It is currently selling at a price-to-earnings ratio of 5.62. This is lower than many of its large-cap real estate stablemates.
At the current price, it has a twelve-month trailing average distribution yield of 9.23%. This is higher than its sector large-cap contemporaries. While it has cancelled the current distribution it has a prior record of paying a stable distribution every year.
Over the medium term, I believe Vicinity Centres is the best value opportunity among all of the large-cap REIT’s and real estate developers.
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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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 Scott Phillips.
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