What occurred in FY25, is VKE has allocated its cash, sold LAR and redeployed that cash into new properties. From a DCF perspective the excess cash and investments in associates were added to the equity value at FV, now the income from the new investments has been added to cash flows. As the incremental yield on new investments is lower than the cost of equity, the DCF value of VKE technically declines. FFO does go up, and as can be seen in the table above our forecasted DIPs growth is slightly higher than management’s estimates, and we forecast future growth in mid to high single digits. As property is a long-term investment, we acknowledge that in the short term the capital allocation appears to destroy value, and to account for this we have blended the DCF with our dividend discount model.
The issue is VKE has diluted the value through the prior equity raises, and the current share price is pricing in that high growth. While we are confident of the high FFO growth in FY26, as the newly purchased centres come into the financials for a full year, we are less confident VKE can sustain that growth. Also, when looking at Castellana’s consolidated AFS it paints a very different picture of performance in Spain and Portugal.