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Vicinity Centres share price drops on portfolio devaluation news

The Vicinity Centres (ASX: VCX) share price is down by 2.49% to $1.37 at the time of writing, after the group announced a portfolio net valuation decline of 11.3%.

Vicinity Centres is one of Australia’s leading retail property groups with a fully integrated asset management platform. It owns, operates and manages a portfolio of retail properties across the country, including both local and world-class shopping centres.

Why is the Vicinity Centres share price under pressure?

Weighing on the Vicinity Centres share price is an announcement of an independent valuation. This resulted in a net valuation decline for its overall portfolio of 11.3% or $1.79 billion for the 6-month period to 30 June 2020.

The announcement highlighted that, due to a lack of suitable transaction evidence as a result of COVID-19 impacts, the valuers addressed market conditions by focusing on underlying cashflow. For example, there has been a reduction in rental income as a ratio of property values. Furthermore, valuers made key assumptions including that rents will see lower growth in the short to medium term, and vacancies have increased.

In addition, Vicinity Centres has provided rent deferrals and waivers as a commitment to its tenants, which has impacted cashflow. Lastly, there has been an increase in capital spending on the company’s properties to ensure they remain relevant. 

Management commentary

Mr Grant Kelley, Vicinity Centres CEO and managing director, said: “We have independently valued our entire portfolio at 30 June 2020. While the overall portfolio net valuation decline was 11.3%, the results highlighted the resilience of our Flagship portfolio, affirming our strategy and weighting towards metropolitan markets with strong long-term fundamentals.”

Mr Kelly went on to say “We remain confident in our strategy of focusing on market-leading destinations, which we believe will deliver returns for investors over the medium to long term, and ensure our retailers have the best platform to reach consumers…”

The company has advised that customer visitation to many of its centres, particularly those that are less reliant on office workers or tourists, is close to pre-COVID-19 levels. Customer visitation across the portfolio is 68% of the prior year level, with 83% of stores trading. Excluding Victoria, portfolio customer visitation increases to 80%, with 95% of stores trading. 

Vicinity Centres share price

The company’s share price is down by 2.4% in today’s trade (at the time of writing). Year to date, the Vicinity Centres share price is down by 44.98% and is currently selling at a price-to-earnings ratio of 4.38. At this price, it has a trailing 12 month dividend yield of 11.79%.

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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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