Vicinity Centres to raise $1.4 billion as asset values downgraded

With shares up 78 per cent on nine-year lows after the COVID-19 pandemic struck, shopping centre owner-operator Vicinity Centres (ASX: VCX) plans to raise up to $1.4 billion to strengthen its balance sheet.

The move follows a 11-13 per cent reduction in Vicinity's asset values, representing a drop of around $1.8-2.1 billion.

The Melbourne-based company will undertake a fully underwritten placement to raise $1.2 billion at $1.48 per share, representing an 8.1 per cent discount to the last closing price.

This placement makes up more than a fifth of the current shares on issue, and will be followed by a share purchase plan (SPP) to raise a further $200 million.

"We are taking decisive action today to strengthen our balance sheet and provide Vicinity with flexibility to respond to the uncertainty caused by COVID-19 and the evolving retail landscape," says CEO and managing director Grant Kelley.

"This Equity Raising also provides support for the continuation of Vicinity's investment-grade credit ratings."

In the group's half-year report released in February it tabled $53 million in cash and cash equivalents, and drawn debt of $4.4 billion.

Vicinity saw around half the stores in its premises reopen by May 6, and the group claims this has now risen to 80 per cent up from a low of 42 per cent in April. 

However, the stabilisation of rental income remains uncertain.  For the three-month period to the end of May, 49 per cent of billings have been received while negotiations continue with a large number of tenants concerning short-term variations to leases.

The company expects rent receipts to improve as stores continue to reopen foot traffic increases and lease negotiations are completed. Foot traffic is now 74 per cent of what it was this time last year, up from a low of 50 per cent in April 2020.

As a response to the uncertainty created by COVID-19, Vicinity has undertaken a number of measures to enhance liquidity and reduce operating costs:

• Establishing $300 million of new debt facilities and extending $650 million of existing facilities;
• Deferring non-critical capital expenditure;
• Reducing hours for 70 per cent of team members effective 21 April to 30 June 2020;
• Reducing Directors' fees and Executive Committee salaries effective 1 April to 30 June 2020;
• Cancelling the FY20 Short Term Incentive program; and
• Reducing or deferring variable and non-critical operating expenses.

"This equity raising, combined with a range of cost and capital reductions implemented to date, significantly strengthens Vicinity's financial position. It provides capacity to invest in our assets to ensure they continue to deliver on consumer, retailer and community expectations," says Kelley.

VCX shares dropped to $0.905 in March, representing their lowest level since listing on the ASX in 2011, but they have been steadily rebounding since the end of that month.

Updated at 9:47am AEST on 1 June 2020.