Vicinity to offload $1 billion in assets

The Glen vicinity centreListed landlord Vicinity Centres will offload $1 billion in sub regional and neighbourhood shopping centre assets in a significant repositioning of its retail portfolio designed to increase its exposure to market leading investments.

Unveiled on Monday, Vicinity said the plan would provide funds for new development opportunities that would enhance its portfolio, following a review.

A Vicinity spokeswoman declined to disclose which individual assets will be up for sale, however Michael O’Brien, Vicinity’s chief investment officer, said the assets being divested are “just not strategically consistent with where we want to take the company”.

“One could argue that the smaller assets are perfectly adequate and good growing assets, which they are,” Vicinity’s chief executive Grant Kelley told Inside Retail, “but in the modern retail world it’s very difficult to be all things to all people.

“For us, I think we have a focused proposition around the larger destination assets,” he said.

Centres such as The Glen and Box Hill Central in Melbourne; Galleria in Perth; as well as Chatswood Chase and Bankstown Central, Sydney are expected to benefit from reinvestment of freed capital.

Additional development opportunities are also being considered, following the recent buy of Sydney’s Queen Victoria building centre and the DFOs outlet portfolio.

Vicinity likely plans to take the lessons learned from the successful Chadstone Shopping Centre in Melbourne, which is Australia’s number one shopping and entertainment destination, and apply them to a smaller, more focused portfolio of larger-scale assets.

“Chadstone’s obviously unique, and it’s important to remember that it’s been a 35-year journey,” Kelley told IRW, “[but] I think the tried-and-true lessons are to increase your percentages of dining, entertainment and services as a proportion of your GLA [gross leasable area], as Chadstone has clearly done.

“I think, secondarily, you treat the site as an opportunity for development. If you look at Chadstone, you’ve got three office towers, a hotel that’s about to go in, and the prospect of additional mixed-use in the future.

“We can indeed apply those lessons learned to other assets in our book and do so in a fairly compelling way.”

JLL has been appointed as Vicinity’s real estate provider on the divestments to co-ordinate the asset sales process in tandem with Macquarie Capital as a corporate advisor.

The divestment is an acceleration in Vicinity’s strategy to reposition its portfolio away from lower grade assets, which has already seen $1.9 billion worth of investments offloaded.

“There are other assets in the portfolio to which the market is not ascribing, in our view, full value. We are working through options as how to deal with these,” Kelley said.

The landlord expects a one cent dilution in its funds from operations per security because of the divestments before freed up capital can be redeployed.

No impact on FY18 is expected, suggesting Vicinity will wait until at least FY19 before offloading any of the non-core assets.

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