Property giant Vicinity (ASX: VCX) has announced a $1.4 billion capital raising to strengthen its balance sheet.
What is Vicinity?
Vicinity is one of Australia’s biggest retail property groups with $26 billion of retail assets under management (AUM) across 64 shopping centres. It is a part owner in the key Chadstone Shopping Centre.
What Vicinity announced
Vicinity has announced it is going to do a $1.2 billion fully underwritten institutional placement. It will then do a non-underwritten security purchase plan (SPP) to raise a further $200 million.
As part of the update Vicinity has withdrawn its earnings guidance and it’s not going to pay a distribution for six months ending 30 June 2020.
Preliminary draft valuations as at 29 May 2020 indicate a reduction in total asset value of between 11% to 13%, or in dollar terms $1.8 billion to $2.1 billion.
The capital raising
The institutional part of the capital raising represents 22% of shares on issue. The issue price is $1.48, a discount of 8.1% to the last closing price of $1.61. The Gandel Group has committed to subscribe for $100 million of new shares.
Regular shareholders will be able to buy up to $30,000 of new shares from 9 June 2020. The offer closes on 6 July 2020.
Why is Vicinity doing a capital raising?
COVID-19 has caused a reduction of foot traffic which caused tenants to close their stores and negotiate on their rent. The timing of stabilising rental income remains uncertain. For the three months from March to May 2020, 49% of billings have been received.
Foot traffic is now 74% compared to last year, from a low of 50% in April. Around 80% of stores are now trading, up from 42% in April.
Vicinity has extended $650 million of debt, established, $300 million of new debt, reduced pay and deferred expenditure.
These capital raisings can prove to be good times to buy cheap shares. But I wouldn’t want to hold for the long term.
Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.