Why I like the Vicinity Centres share price today

The Vicinity Centres (ASX: VCX) share price crashed 5.0% lower yesterday in another tough day for shareholders.

Shares in the Aussie real estate investment trust (REIT) are now down 46.8% in 2020 compared to an 8.4% drop in the S&P/ASX 200 Index (ASX: XJO).

However, I still like the Vicinity Centres share price at $1.32 per share. Here’s a couple of reasons why I’ve got my eye on the Aussie REIT in 2020.

Why is the Vicinity Centres share price falling?

Interestingly, there have been no new announcements from the Aussie REIT since 19 August. That was the day Vicinity released its FY20 results headlined by a $1.8 billion statutory loss.

Property valuation declines and significant goodwill impairment hurt the bottom line as Vicinity cancelled its June distribution.

Net property income fell 23.0% while occupancy rates deteriorated by 90 basis points to 98.6%. Funds from operations (FFO) fell 24.5% to $520.3 million with 90% of stores trading compared to FY19.

The coronavirus pandemic continues to weigh on the Vicinity Centres share price given the restrictions on movement and store capacity.

Investors have been bearish on the Aussie REIT this year given its heavy exposure to the retail sector. However, I think a 46.8% year to date decline could present a buying opportunity for speculative investors.

Why the Aussie REIT could be a cheap buy right now

I think this really comes down to how the economic recovery plays out. On the one hand, a ‘V-shaped’ bounce back would be good news for the REITs.

Customers could return to shopping centres, boosting sales and improving occupancy rates and leases.

However, a prolonged downturn would not be good news. Vicinity has heavy retail exposure including mega centres like Chadstone in Victoria.

If sales are depressed and tenants shift to an online-only model, there are some challenges ahead.

However, Vicinity has reduced its gearing from 33.7% to 25.5% during the year to boost liquidity. This focus on capital management, including no June distribution, is good for short-term security.

The other thing to remember is that Vicinity has a portfolio of prime real estate around the country. Having a good portfolio of assets is always a good things when times get tough compared to speculating on future growth.

Foolish takeaway

There are some big challenges ahead for Vicinity Centres and its share price. However, I think a strong capital management program coupled with heavy share price losses could make it worth a look.

If we see a quicker than expected economic turnaround in 2021 then I’d expect Vicinity Centres to outperform early next year.

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Motley Fool contributor Ken Hall 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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