How REITs Are Reacting to COVID-19 Uncertainty: Lens on VCX, ARF, GPT

  • Jun 09, 2020 AEST
  • Team Kalkine
How REITs Are Reacting to COVID-19 Uncertainty: Lens on VCX, ARF, GPT

Summary

  • The real estate industry has taken a significant hit, and market scenario remains uncertain due to the COVID-19 induced lockdown and businesses coming to a standstill.
  • Amidst restricted business activities, some REITs are raising capital for strengthening their balance sheet.
  • Vicinity Centres has successfully completed AUD 1,200 million Institutional Placement, while Arena REIT increases its Placement to AUD 60 million.
  • GPT Group disclosed negative revaluation and decline in the book value.

COVID-19 pandemic has left streets, shopping malls and offices empty, because everyone across the globe is confined to their homes, which has become a way of life over the last two months since the fight with the pandemic started. However, few countries have weathered the COVID-19 storm and are easing restrictions to bring economic activities back on track. Some economists have stated that the economic damage due to COVID-19 represents the greatest economic shock the globe has undergone in years.

Many of the real estate retail-focused companies have lost nearly half of the value as investors correctly speculated that stay-at-home orders would reduce shopping trips and reduce customers spending. The REITs focused on office businesses have also experienced enormous impact as closed businesses are not able to pay rentals. Furthermore, large-scale work from home policy implementation has made investors reconsider office space’s future.

However, not all REIT businesses have been similarly affected. A few REITs are racing out the pandemic induced closures and remain relatively unaffected. While some of the players have done reasonably well, most REITs have felt the impact of the virus. The industry, which is generally considered as a safe investment option, has struggled with players opting for the capital raising process and opting to withdraw guidance citing uncertainty in the market.

DID YOU READ: Property market’s struggle expected to persist while Australians focus on stocking food

Advantages of investing in Real Estate Investment Trust

Real Estate Investment Trust is a company that owns, manages or finances income-generating real estate players. It combines the capital of several investors and makes steady income stream for them with no need of them to buy, manage or finance any property.

REITs (Real Estate Investment Trust) permit investors interested in making gains from the real estate market to invest their money in a fund managed by experienced professionals that have allocated the gathered funds across a diverse basket of real estate products varying from residential, retail, office, to social infrastructures such as school and hospitals.

ALSO READ: Lens through ASX REIT Stocks.

On 9 June 2020, S&P/ASX200 A-REIT Sector closed at 1,351.6 points, indicating a rise of 3.87% compared to the previous close, while benchmark index S&P/ASX 200 ended at 6,139.3 points, an increase of 2.44%.

During the COVID-19 pandemic unfolding, many businesses are progressively tapping investors for the capital. Some REITs are also introducing capital raising to boost their loss emerged due to COVID-19 induced restrictions.

Let us look at the recent developments of three ASX-listed REITs - VCX, ARF, GPT.

Vicinity Centres Successfully Completes AUD 1,200 Million Institutional Placement

REIT Vicinity Centres (ASX:VCX) is one of the leading retail property groups in Australia having a wholly integrated asset management platform and almost AUD 26 billion in retail assets under management across 64 shopping centres. Vicinity manages 32 resources on behalf of Strategic Collaborators, 28 of which are combinedly owned by the group, the Company has more than 26k security holders.

On 2 June 2020, Vicinity Centres revealed that the group had completed an underwritten Placement of completely paid new stapled shares to professional as well as institutional investors, at the per new share offer price of AUD 1.48. The Placement received substantial assistance from existing shareholders and requirement from potential new investors, raising AUD 1,200 million.

On 1 June 2020, Vicinity Centres had announced that it was undertaking:

  • A fully underwritten institutional placement to raise AUD 1,200 million.
  • A non-underwritten Security Purchase Plan to raise up to a further AUD 200 million.

This equity raising will strengthen the balance sheet of Vicinity and offer much-needed flexibility to respond to the uncertainty sparked by COVID-19 pandemic and the changing retail industry landscape. The net proceeds from the Placement will be used to repay debt.

Stock Information:

On 9 June 2020, VCX stock closed at AUD 1.845, a rise of 6.034%, and a market cap of nearly AUD 7.88 billion. VCX stock has approximately 4.53 billion shares outstanding on the ASX. The annual dividend yield of VCX stands at 8.99%.

Arena REIT increases Placement size, provides Outlook and Guidance

ASX-listed internally managed Australian Real Estate Investment Trust (A-REIT) Arena REIT (ASX:ARF) is into the development of social infrastructure property assets across Australia.

Arena REIT aims to provide a predictable yet appealing distribution to investors. The Company intends to offer profit growth expectations in the long term. As an active property manager, Arena intends at developing portfolio quality along with minimising risk.

On 2 June 2020, Arena REIT announces it is undertaking a fully underwritten AUD 50 million institutional placement at a per new share issue price of AUD 2.28 to provide the capacity to pursue further social infrastructure property investments.

It will also offer a non-underwritten SPP to eligible shareholders to raise up to AUD 10 million.

Outlook and Guidance

Arena anticipates paying a final FY20 distribution for the H2 of FY20 in the range of 6.75-6.85 cents per security. The payout ratio for the second half of the fiscal year 2020, has been adjusted, so the distribution reflects rent receivable for the six months net of rent deferrals. This would bring the full year FY20 distribution per security (DPS) to 13.9-14.0 cents.

The Company disclosed that until March 2023 there is no debt expiry falling due. Notably, Childcare and healthcare remain essential to economic recovery.

DO READ: Australian REIT Chronicle: Arena REIT Continues Serving Communities, Declares Distribution Guidance

Stock Information:

On 9 June 2020, ARF stock ended at AUD 2.410, down by 1.23%. With a market capitalisation of nearly AUD 798.56 million, the stock has 327.28 million outstanding shares on ASX. The annual dividend yield of ARF stock stands at 5.7%.

GPT Group Disclosed Decline in Book Value

ASX-listed company GPT Group (ASX:GPT) is one of Australia’s real estate investment trust and biggest diversified property groups. GPT Group operates and owns approximately AUD 24.8 billion portfolios of logistics, office, and retail property assets.

On 9 June 2020, GPT Group stated that it has independently revalued its retail portfolio as at 31 May 2020. Moreover, all assets in the GPT Wholesale Office Fund and the GPT Wholesale Shopping Centre Fund have been independently revalued as of 31 May 2020.

GPT Wholesale Office Fund (GWOF) recorded a negative revaluation of AUD 34 million, representing a 0.4% decline in book value against the 31 March 2020 book value. GPT Wholesale Shopping Centre Fund (GWSCF) recorded a negative revaluation of AUD 137.6 million, representing a 3.5% decline in book value against the 31 March 2020 book value.

Moreover, the ownership interest of GPT in GWOF is nearly 22.3%, while its ownership interest in GWSCF is 28.5%.

Stock information:

On 9 June 2020, GPT stock closed at AUD 4.570, going up by 7.529%. With a market capitalisation of nearly AUD 8.28 billion, the stock has 1.95 billion outstanding shares on ASX. The annual dividend yield of the stock stands at 6.23%.

 


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