Vicinity Centres’ Shares Tumble On The Day Of 2018 AGM

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Vicinity Centres (ASX: VCX) shares are drifting lower on the day of its Annual General Meeting. At the timing of writing, 1 November 2018 (4:00 PM AEST), the share price of Vicinity Centres has plunged by 1.69% to stand at $2.605.

In the Annual General Meeting, Chairman Peter Hay addressed the progress of Vicinity Centres since its merger in 2015. He told over the past three years the company has emerged as an Australia’s leading retail property groups that includes a flagship portfolio valued at $16.6 billion as at 30 June 2018.

Mr. Hay further emphasized two major strategic initiatives undertaken by the company this year. First, a divestment program of up to $1 billion of non-core assets was announced by the company in June with the target completion by the end of this year. Second, the company has proposed the establishment of a $1 billion wholesale fund in a joint-venture with Keppel Capital in support to access substantial offshore capital partners. 

For the 2018 financial year, Vicinity delivered a net profit of over $1.22 billion, consisting of $708 million of funds from operations (FFO), and approximately $550 million in valuation gains. During FY18 company’s FFO per security increased to 18.2 cents, up 2.2% on a comparable basis and net corporate overheads reduced by 2.1%.

In April this year the company has clutched 50% stake in three premium Sydney CBD assets that include Queen Victoria Building, The Galeries and The Strand Arcade. It has been told that these centres perform at a very high levels of sales productivity, with about 60 million people visiting them each year. As a result, the company has already achieved an 8.5% gain in asset value since acquisition, equating to 3.1% net of acquisition costs.

Further, the management described the market-leading destination strategy of the company. Under this strategy the company aims to hold 50 ‘market-leading destination’ centres which will trade on an average at ~$11,000 per square meter in specialty sales at an occupancy cost of 15%.

On balance sheet front, net tangible assets per security have increased by 5.3% to $2.97 driven by net valuation gains of approximately $550 million. Although these valuation gains were partly offset by divestments, the overall value of Vicinity’s directly owned portfolio increased by approximately $850 million, to $16.6 billion. At June 2018, gearing was a healthy 26.4%, at the lower end of the target range of 25-35%.

Moreover, since 2015 the company has shown 70% growth in its average asset values while the average productivity of Vicinity’s specialty stores has increased by 25% to over $10,500 per square metres.

Looking into full year performance of Fiscal 2019, the company expects FFO to range between 18.0 and 18.2 cents per security, thereby reflecting comparable growth of 3.4% to 4.6%. Whereas, the distribution payout ratio is expected to be at the upper end of the target range of 95% to 100% of adjusted funds from operations or 85% to 90% of FFO.

Out of $1 billion non-core assets divestment program, company has announced the sale of 11 of those assets for $631 million till the early October. Further, the company expects to divest total of $2 billion assets during Fiscal 2019.


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