Vicinity Centres plans $1bn sale of shopping malls

Vicinity will use the sale of smaller neighbourhood shopping malls worth up to $1bn to focus on its flagship centres.

Vicinity Centres' Chadstone shopping mall in Melbourne. Pic: Aaron Francis

Listed retail landlord Vicinity Centres is set to sell up to $1 billion of smaller shopping centres as the group unveils a strategy of focusing on flagship destination assets.

The landlord (VCX) will use the proceeds of the asset sale to reduce gearing and redevelop some centres, including the addition of mixed-use elements such as apartment towers.

The plans come amid a challenging retail environment, with cautious consumers worrying about lacklustre wages growth or turning to online shopping platforms such as Amazon.

“You’ve got to, in a challenging environment, specialise more than you had to in the recent past,” Vicinity chief executive Grant Kelley told The Australian.

“Most of our competitors, in fact all of them, have specialised in one of two ways. Either they’ve specialised in the destination, big box, market-leading, hospitality dining entertainment strategy, which is very much our articulated strategy. Or they’ve specialised in convenience centres.

“And it’s possible to make money in each scenario… but you’ve got to specialise.”

Mr Kelley downplayed comparisons to global mall giant Westfield, which focused on the largest flagship malls and has recently been taken over by European landlord Unibail-Rodamco.

Vicinity has a “significant” mixed-use development opportunity at its destination centres that will set the company apart, he said.

The sale process made more sense than spinning off the non-core assets into a new listed company as earlier proposed by Macquarie analysts, Mr Kelley said, warning that a spin-off would divert employees’ focus.

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. 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.

The centres in focus are in Queensland, NSW, Victoria and Western Australia while a sale in one line would be preferred, the deal could also be split into groups of like assets or individual centres, The Australian understands.

Prospective buyers might include landlords focused on neighbourhood centres such as Charter Hall’s listed retail fund or unlisted partnership, the listed Shopping Centres Australasia Property Group, or fund managers such as ISPT.

Vicinity has appointed JLL as its real estate adviser working with Macquarie Capital as its corporate advisor.

The sales proceeds will be used to reduce gearing by about 450 basis points and redeployed into developments including The Glen and Box Hill Central in Melbourne, Galleria in Perth and Chatswood Chase and Bankstown Central in Sydney. The Bankstown and Box Hill centres in particular could be home to new apartment towers.

The group expects about one cent dilution on an annualised basis on funds from operations per security before the reinvestment of proceeds.

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.