COMMERCIAL PROPERTY, SALES & LEASINGREAL ESTATE INVESTMENT TRUSTS & FUNDS

Vicinity pockets $195m from non-core sales, downgrades guidance

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VICINITY Centres has sold two non-core assets, the Mt Ommaney Centre and Corio Central for a combined $195.5 million and at the same time it slightly reduced its FY20 earnings guidance.

CBRE’s head of retail capital markets Simon Rooney negotiated the sales, with Corio Central in Victoria acquired by IP Generation Pty Ltd for $101 million (a 3.8% discount to book value) and the 25% stake in Mt Ommaney Centre in Brisbane purchased by YFG Shopping Centres for $94.5 million (3.3% premium to book value).

Vicinity CEO Grant Kelley said: “We are pleased to have achieved solid pricing for these assets, following improved investor demand since we announced in August 2019 that we would not proceed with any further material divestments in the current environment. The sale of these non-core assets is in line with our strategy of focusing our portfolio on market-leading destinations,”

“Today’s announcement is the continuation of strategic portfolio refinement, which has seen Vicinity divest interests in 37 non-core assets for $3.3 billion at a combined 0.7% premium to book value. These proceeds have been used to create additional value for our securityholders through $1.1 billion of acquisitions, up 12.3% in value since acquisition; $0.5 billion of securities buy-back at an 11.1% discount to June 2019 NTA; and $1.0 billion of developments which have delivered a 12.5% uplift on completion.

“Consequently, adjusting for these divestments, Vicinity’s portfolio has a 76% greater average asset value and 35% stronger comparable specialty store sales productivity. Our strategy focused on creating and investing in market-leading destinations is delivering results,” he added.

Kelley said the transaction will further strengthen the group’s balance sheet, reducing gearing by 90 basis point to 26.2%.

“Over the medium term, we expect to drive additional value for securityholders through investing the sale proceeds into accretive developments of our strongly performing centres, acquiring destination assets aligned with our strategy, or by acquiring Vicinity securities at accretive pricing,” he added.

Rooney said while retail transaction volumes have decreased in 2019, there are now clear signs of more positive investor sentiment and heightened enquiry levels for retail assets.

“There is general acknowledgement that the retail sector has been over-sold, and that stabilised, better quality assets with an obvious growth and value add profile represent an attractive value proposition compared to other sectors.

“An increasing number of these strategic retail assets, that have traditionally been long term institutional holds, are now presenting themselves. The opportunity to acquire these core and core plus retail holdings, at either current or recalibrated values, is becoming very appealing as evidenced by current and soon to be announced transactions.”

Located in northern Geelong, 68km from the Melbourne CBD, Corio Central is a 31,052 sqm sub-regional centre securely anchored by Coles, Woolworths and Kmart on leases until at least 2025 – representing 44% of the gross lettable area (GLA).

The Mt Ommaney Centre was acquired by YFG Shopping Centres, a family business which controls 20 shopping centres in south-east Queensland, including Australia Fair on the Gold Coast and Brookside Shopping Centre in Brisbane’s north.

The largest and most dominant shopping centre in the trade area, Mt Ommaney has a total GLA of 56,469 sqm, over 20,000 sqm larger than the next most significant retail centre.

“YFG was attracted to the unique opportunity to acquire a 25% interest in a major metropolitan Brisbane shopping centre with the potential to acquire management rights,” Rooney said. “The centre is anchored by a triple supermarket offer of Coles, Woolworths and ALDI, together with a triple discount department store offer of Kmart, Big W and Target. It continues to benefit from the extensive population growth occurring in the region and provides significant future redevelopment opportunities.”

This includes an approved development application for a 11,481sqm expansion, including the introduction of a state-of-the-art cinema, casual dining precinct and entertainment destination together with an improved bus interchange and increased parking.

Meanwhile Vicinity has reduced its FY20 funds from operations guidance. FY20 FFO per security guidance reduced by 0.2 cents to 17.6 to 17.8 cents due to timing of asset sales, assuming no reinvestment of proceeds.

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