Given how tenant moving annual turnover looked at the last half (first graph)…
…we see the subsequent successful collection of rental billings as a solid accomplishment.
Occupancy remains high, at 98.2%, which we see as essential for keeping the positive network effects of shopping centres (foot traffic, destination based “experiences”) alive.
In a world dominated by COVID effects (numerous rolling lockdowns) leasing spreads are what gives to maintain those high levels of occupancy, and VCX saw meaningful declines (~-12%) accordingly.
Overall, the adjusted funds from operations was reasonably solid, up 7% over FY2020, and modestly ahead of expectations.
VCX generally trades like good quality, and screens as very good value.
Now, whilst VCX’s portfolio assets are indeed very high quality (for example the QVB in NSW, or Chadstone in Victoria) for the most part this positive quality factor loading stems from the very low sector beta of REITs (often ~.7x).
Overall, cap rates remain attractive, with a weighted portfolio average of ~5.4% (graph below not updated to latest numbers).
The point remains, however, that the expectations embedded in the VCX market cap are low, and to our mind, enable good odds of VCX surprising to the upside over time.
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