VCX/DXS

Vicinity (VCX) had a positive trading update, yesterday.

Similar to many other REIT’s, cap rates tightened modestly, leading to portfolio valuation uplifts.

This matters to VCX, given that the market has priced office and retail exposed REITs at a marked discount to NTA, given fears about the longer run impacts of work from home, and increased online sales penetration, on occupancy rates and traffic volumes.

Dexus (DXS) was the same, with external revaluations resulting in a 2.4% uplift to book, driven by cap rate compression across both office and industrial assets.

Embedded earnings expectations, in either company, are very modest. To achieve a “market-like” rate of return, VCX really just needs to maintain current earnings, and requires no multiple expansion.

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Recall that this model is in logs, as such the negative earnings era of 2010 (and the recent pandemic related losses) are na’d out.

DXS has a more aggressive growth trajectory to achieve, but one that is in-line with recent growth rates, and given that DXS is in a fairly aggressive M&A / capital recycling mode, underpinned in turn by strong demand for their industrial assets, is one we think they can achieve.

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