Vicinity to sell $1b in shopping centres

Vicinity to sell $1b in shopping centres

8 June 2018

One of Australia largest landlords, Vicinity Centres, has announced plans to sell $1 billion of its secondary shopping centres and reinvest the money in developing other malls, reports The Sydney Morning Herald.

The real estate investment trust wants to concentrate on building apartments, hotels and office towers at its premium malls turning them into destination ”town centres”.

Vicinity is Australia’s second largest landlord, owning or operating major malls like the Queen Victoria Building and The Strand in Sydney, Chadstone in Melbourne, as well as the Direct Factory Outlet chain.

The company plans to offload “non-core” sub regional and neighbourhood shopping centres, but it would not name any specific sites.

The centres targeted for sale will be offloaded either individually, in groups or as a portfolio targeting super funds, other listed real estate funds, high net worth investors and overseas-based pension and sovereign funds.

Vicinity’s move comes as broader change sweeps across a sector battered by the rise of e-commerce and shifting consumer sentiment, says the AFR.

The disruption is driving M&A activity with players such as Unibail-Rodamco taking over Westfield, the largest corporate deal yet in this market.

Australia’s biggest mall owner, Scentre, along with diversified players such as Mirvac, GPT and Stockland are all moving to Amazon-proof their portfolios.

“It is a tough sector,” Grant Kelley Vicinity CEO said. “Anyone who doesn’t aver to that is at risk of being, quite candidly, left behind. We have to constantly adapt to the reality of our external market.”

Vicinity’s half-year 2018 underlying profit fell 1 per cent because of a tougher environment.

Vicinity has already begun to reinvest capital into its major malls, upgrading The Glen and Box Hill Central in Melbourne, Galleria in Perth, and Chatswood Chase and Bankstown Central in Sydney.

Vicinity last year sold the air rights above The Glen to Jeff Xu’s Golden Age Group which this month launched a $450 million apartment development.

“When you build residential as a mixed use, it’s a double-whammy,” Mr Kelley said. “You create capital value but you also create a catchment for the asset.”

Vicinity is also considering residential extensions at its malls at Box Hill in Melbourne and Bankstown in Sydney.

Since the group was formed in 2015 through the merger of Novion Property Group and Federation Centres it has sold 23 assets for $1.9 billion, notes The Australian.

Assuming an average value of $82.6 million per centre, it appears about a dozen assets will now be for sale.

The sales campaign will start this month and the company hopes to complete the divestments as quickly as possible, with assets worth about $30m to $100m each likely to be on the block.

CLSA’s Michael Vincent said in a note to clients that the sale plans were “not unsurprising, given the need for Vicinity to address its asset portfolio quality”.

“The developments will take time before they become income generating, and as such the dilution impact may linger before recovering,” the broker wrote.