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Vicinity swaps prime Sydney assets with GIC

Chatswood_Chase_Sydney_Shopping_CentreRetail landlord Vicinity Centres has entered into contracts with Singaporean investment firm GIC to exchange a 49 per cent interest in Chatswood Chase for 50 per cent interests in the Queen Victoria Building, The Galeries and The Strand Arcade in Sydney’s CBD.

The interests in the Sydney CBD Centres have been acquired for $556.0 million on a 5.1 per cent blended capitalisation rate while the interest in Chatswood Chase Sydney has been sold for $562.3 million on a 4.75 per cent capitalisation rate.

As part of the deal, Vicinity will continue to manage Chatswood Chase Sydney and will assume management of the Sydney CBD Centres.

The transaction is expected to be accretive to funds from operations by approximately $5 million, or 0.13 cents per security, on a full-year basis.

Chatswood Chase Sydney is a major regional shopping centre situated in one of Australia’s most affluent catchments on Sydney’s north shore, with over 11 million consumer visits annually. The centre is anchored by David Jones, Coles and Kmart stores and has 170 specialty stores, including a number of premium brands.

Outgoing Vicinity CEO Angus McNaughton said the transaction is “strategically significant” for the property firm.

“We gain exposure to, and the management rights of, three high quality and strongly performing CBD centres in Sydney, Australia’s most populous and most visited CBD,” he said.

“Combined foot traffic through the Sydney CBD Centres is approximately 60 million people per annum, with visitation from three main, and growing, consumer segments – office workers, tourists and residents, who spent $590 million across the three centres this year.

McNaughton said the Sydney CBD Centres perform at very high levels of retail sales productivity, with specialty sales averaging $23,890 per square metre and specialty MAT growth of 2.4 per cent, while overall MAT growth was 4.0 per cent.

“This is despite significant disruption from the light rail works along George Street to which all three centres have frontage. These works are due to complete in 2019 and are expected to significantly improve the access and amenity along Sydney’s main CBD thoroughfare.”

Adjusting for the inclusion of the Sydney CBD Centres, specialty sales per square metre across Vicinity’s direct portfolio would increase by 5.3 per cent from $9,417 to $9,916.

“These premium Sydney CBD Centres will add more than $1.1 billion to our retail assets under management, expanding Vicinity’s management exposure to New South Wales and up-weighting our direct exposure to city centre assets from 11 per cent to 15 per cent,” said McNaughton.

The transaction also expands Vicinity’s premium and CBD portfolio which already includes Emporium Melbourne and Chadstone both in Melbourne, The Myer Centre Brisbane and Queens Plaza both in Brisbane.

“We have identified a number of areas where we can create additional value over time at the Sydney CBD Centres through continued improvement in the tenancy mix, driving ancillary income and operational efficiencies,” said McNaughton.

“These centres will also benefit from significant investment in transport infrastructure taking place over the next few years in Sydney including, in addition to the light rail project, the Sydney Metro rail which will improve access to the CBD from Sydney’s north west and south west.”

The new Pitt Street Metro station will also be adjacent to The Galeries.

The transaction is expected to settle in early 2018 and remains subject to approvals by Sydney City Council, RailCorp and the Foreign Investment Review Board.

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