The ownership landscape of shopping centres is set for a shake up as the country’s biggest mall landlord, Vicinity Centres, embarks on asset sales and the launch of its $1 billion wholesale joint-venture fund with Keppel Capital.
Since its merger with Novion in 2015, Vicinity has sold about $2 billion worth of centres not deemed core to its business and with the current sales and the new fund, the total sold by the end of 2019 will be about $4 billion.
The sales come as the retail backdrop remains challenging, with subdued consumer and soft sales growth. Transactional markets remain very strong for quality centres, albeit are softening for mid-tier assets, and relatively strong for assets valued at less than $50 million.
Under the plan the Vicinity Keppel Australia Retail Fund (VKF) will be a 50-50 joint venture with the Singaporean-listed Keppel Capital. The funds management fee will be shared equally between Vicinity and Keppel.
Property management and development services income will be received by Vicinity and the fund is being marketed as a high-yield fund.
Vicinity has not revealed which centres will go into the proposed wholesale fund, but analysts at JPMorgan have suggested the eight centres could be Warwick Grove and Dianella Plaza, Perth; Eastlands, Tasmania; Roxburgh Village, Altona Gate and Sunshine Marketplace, Melbourne; Taigum Plaza, Queensland; and Colonnades in South Australia.
”We are positive on the plan [the wholesale fund] as we identified an additional $1.5 billion of non-core assets in excess of the current $1 billion portfolio for sale. Both portfolio sales still need to be executed but the pathway to material portfolio improvement is becoming clearer,” JPMorgan analysts said.
The sales will change the focus of Vicinity to about 50 ”flagship” centres, worth about $14 billion, while allowing a swath of new owners to rejuvenate the neighbourhood malls to cater for their own catchment areas.
According to Peri Macdonald, executive general manager retail for Frasers Property Australia, the change in the retail investment hierarchy can be attributed to a number of factors, not least the evolution of shopping towards a more convenient, non-discretionary focus.
”Population growth and increased density in inner-city catchments are giving rise to greater demand for new forms of convenience retail, as more health and lifestyle uses emerge and demand for food and retail services increases,” Mr Macdonald said.
”This growth reveals a distinct opportunity for the emerging super-neighbourhood class of shopping centre, which mirrors the locally curated tenancy mix of neighbourhood centres on a size scale similar to sub-regional centres.”
He said while there had traditionally been a clear hierarchy in retail in terms of risk profile for each shopping centre category, the changes in physical format to the traditional neighbourhood shopping centre, including the emergence of the super-neighbourhood centre concept, would support the recent convergence of yields between the two retail formats.
Andrew Quillfeldt, director strategic research JLL, said that while average yields had trended down and converged, the yield spread between the strongest and weakest centres in all formats was unusually wide, with considerable overlap between the neighbourhood and sub-regional sectors.
“This reassessment of the retail sector creates opportunities for centre owners and active managers to add value by repositioning their assets,” Mr Quillfeldt said.
Through the sales of the assets Vicinity says it will redirect the funds to development of the malls to include residential, such as The Glen and hotels, such as at Chadstone, being the two biggest Melbourne sites.
In Sydney it has been suggested the Chatswood Chase centre on Sydney’s north shore has been earmarked for a major overhaul in coming years.
”If the Vicinity/Keppel portfolio and the planned $1 billion portfolio on the market are both sold, Vicinity’s average specialty productivity would increase to $10,700 per square metre per annum and its exposure to premier or A-grade assets would increase from 69 per cent as at December 2017 to 79 per cent,” JPMorgan said.
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