Vicinity Centres (ASX:VCX) is a AU$9.83B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Vicinity Centres is a laggard or leader relative to its real estate sector peers. See our latest analysis for Vicinity Centres
What’s the catalyst for Vicinity Centres’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw growth in the twenties, beating the Australian market growth of 9.60%. Vicinity Centres lags the pack with its negative growth rate of -0.42% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Vicinity Centres poised to deliver a -43.12% growth compared to the industry average growth rate of -29.12%.
Is Vicinity Centres and the sector relatively cheap?
REIT companies are typically trading at a PE of 8.79x, lower than the rest of the Australian stock market PE of 17.38x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 13.45% on equities compared to the market’s 11.75%. On the stock-level, Vicinity Centres is trading at a PE ratio of 6.99x, which is relatively in-line with the average REIT stock. In terms of returns, Vicinity Centres generated 11.96% in the past year, which is 1.49% below the REIT sector.
Next Steps:
If Vicinity Centres has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector. However, before you make a decision on the stock, I suggest you look at Vicinity Centres’s fundamentals in order to build a holistic investment thesis.