Retail landlord Vicinity Centres has entered a memorandum of understanding with Singapore shipbuilder Keppel Corporation’s asset management arm to establish a new A$1 billion wholesale property fund.
Keppel Capital, a subsidiary of Keppel Corp, and Vicinity Centres intend to invest in an initial A$1 billion portfolio of retail properties owned by Vicinity Centres and will manage the fund through a joint venture, the Vicinity Keppel Australia Retail Fund (VKF). The VKF would take the planned asset divestments for Vicinity in FY19 to approximately $2 billion.
According to Vicinity Centres, it will continue to provide property and development services for the shopping centres in VKF. The transaction will also continue the retail landlord’s capital recycling, which has created significant value for Vicinity’s security holders over the past three years.
Vicinity and Keppel will each hold a 50 per cent stake in the venture and both parties will hold a 10 per cent equity stake in the fund.
Vicinity Centres said the launch of the VKF is the next step of its strategy to deliver income and sustainable long-term capital growth for security holders by focusing its directly-owned portfolio on destination assets that provide market-leading shopping, dining and entertainment experiences.
“Including the planned divestment of up to $1 billion of non-core assets which we announced in June 2018, and following the establishment of this fund, we will have sold approximately $2 billion of assets in addition to the $2 billion of assets sold since the merger was completed in 2015,” said Grant Kelley, Vicinity CEO and managing director.
“We intend to reinvest the proceeds into our high-quality development pipeline and, potentially, to buy back Vicinity securities.”
Kelley said following targeted, confidential wholesale investor soundings last month, there is already significant interest in VKF from offshore institutions.
Vicinity stated the new wholesale fund would boost its total strategic partnerships business to close to $12 billion of assets under management and would increase both fund and asset management fees, with Vicinity providing all property management, leasing and development services.
Christina Tan, CEO of Keppel Capital, said the proposed fund, which will be Keppel Capital’s first retail-focused real estate fund, will expand their track record in Australian real estate investments beyond office developments to include retail properties.
“It will allow us to connect our investors to a select diversified portfolio of Australian retail assets that generate stable cashflow with growth potential,” Tan said.
The new wholesale fund will be marketed with a targeted financial close by the end of the first quarter in 2019 and would initially invest in a portfolio of retail assets across five Australian states that are well positioned in their catchments and are predominantly non-discretionary spending based, anchored by supermarkets and services.
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