Vicinity Centres prepares for $1bn selloff

The Vicinity Centres-owned shopping centre at Altona Gate
The Vicinity Centres-owned shopping centre at Altona Gate

Vicinity Centres chief executive Angus McNaughton has declared that investment demand for retail property will soar higher in 2016 as the shopping centre giant prepares to sell up to $1 billion worth of non-core assets.

McNaughton fronted the market on Monday to update investors on the strategic direction of the $11 billion real estate investment trust, which was formed in June following the merger of rival retail landlords Federation Centres and Novion Property Group.

McNaughton assured investors that the strategic focus of the group will remain unchanged, despite a raft of changes in its senior executive ranks over the six months.

He says that the group, whose biggest shareholder is billionaire John Gandel, will seek to improve its portfolio in 2016 after identifying between $750 million and $1 billion of properties that are likely to be sold over the next year.

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McNaughton would not reveal which centres were targeted for sale, or how many.

Vicinity, Australia’s third biggest property trust, owns some of Australia’s leading shopping centres across a $22 billion portfolio, such as Melbourne’s Chadstone and The Glen.

“The demand for retail is incredibly strong, from both onshore and offshore investors. You are going to see strong firming in valuations (in the retail sector) next year,” McNaughton says.

Chadstone is part of Vicinity Centres' $22 billion portfolio.

Chadstone is part of Vicinity Centres’ $22 billion portfolio.

“Retail investment or valuations have been a laggard in the (property) market. The retail fundamentals are stronger than the office fundamentals, yet the valuations have actually lagged behind what has happened in office.”

McNaughton says that the group will sell some of the properties as portfolios, while others will be sold individually.

He adds that some will be sold on-market while others will have an official sales campaign. The funds will be redirected into the development pipeline across its portfolio, which would be a strong source of growth for Vicinity.

The demand for retail is incredibly strong, from both onshore and offshore investors.

Analysts from Macquarie have identified nine of the lower quality assets, with a total value of $1.4 billion, which may eventually be sold.

Most of these properties are in Victoria, including properties located in Altona Gate, Brimbank, Bayside, Broadmeadows, Box Hill Central (North Precinct) and Brandon Park.

A West Australian property at Albany has also been identified, and a Queensland centre at Monier Village.

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“These assets typically have a combination of lower sales productivity, higher occupancy costs and higher vacancy,” the Macquarie analysts say.

But McNaughton says that the properties are being sold across a range of regions and different retail segments.

“We have an investment return hurdle over a 10-year period that we look at. Then we look at competition in the area, if there is development potential in an asset and if there are remix opportunities that can be extracted. So we just look at where the assets are going to fit in the long term and some of them are in locations which are more difficult to manage,” he says.

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