Vicinity chief looks to mixed-use developments

Chadstonehotelheroartistimpression

Artist’s impression of the new hotel being built at Chadstone Shopping Centre

New Vicinity Centres managing director Grant Kelley will look to the company’s “opportunity-rich real estate” for growth after reporting a 17 percent fall in half-year profit.

The shopping centre landlord said statutory net profit after tax was $755.9 million for the six months to 31 December 2017, underpinned by strong net property valuation gains of $408.5 million.

FFO for the period was $357.7 million or 9.1 cents on a per security basis.

Adjusting for acquisitions and divestments, comparable FFO growth was 2.2 per cent.

Kelley said visits undertaken to 65 of Vicinity’s shopping centres since he joined six weeks ago, had reinforced his view that Vicinity had executed strongly a clear and well defined strategy.

Creating additional value for Vicinity’s security holders will be a key focus going forward, both through enhancing portfolio quality and additionally, by selectively targeting high-impact, unrealised opportunities in mixed-use,” he said.

“We will maintain our regular reviews of the portfolio and, where appropriate, continue to sell assets which either fail to meet our total return requirements, or do not offer future value generation opportunities.

“Based on my asset review, it is clear that Vicinity has an opportunity-rich real estate portfolio. With a material amount of land surrounding many of our shopping centres, I think there is clear potential to unlock and optimise significant unrealised value in the portfolio, whilst preserving and complementing the existing retail assets.

In November 2017, announced a strategic exchange of Sydney premium assets with GIC. The transaction sees Vicinity swap 50 per cent of interests in, and management of, GIC’s Queen Victoria Building, The Galeries and The Strand Arcade for $556 million, in exchange for a 49% interest in Chatswood Chase Sydney, valued at $562 million.

“This is a significant milestone for Vicinity, providing us with an unrivalled premium retail offer in the CBD’s of Australia’s three largest cities, and expanding our strategic partnership with GIC,” said Kelley.

“We expect the Sydney CBD Centres to benefit from the completion of major transport infrastructure projects as well as growth in Sydney’s office, residential and tourism markets.

Re-weighted retail portfolio

Subdued economic growth in Australia, in particular wages growth, have characterised a challenging retail environment, according to Kelley, who said while there were signs of improving economic conditions in late 2017, this may take time to flow through to increased retail spending.

“Against this backdrop, we continue to re-position our portfolio through pro-active re-mixing of our tenancies, towards higher demand categories.

“Over the past five years we have re-weighted our portfolio from women’s apparel (down 14 per cent) into categories experiencing higher demand such as food catering (up 17 per cent) and retail services (up 42 per cent).

Vicinity centres remain effectively full at 99.5 per cent occupancy and comparable specialty occupancy costs are 14.8 per cent.

Comparable specialty sales per sqm are $9,374, which increases to $10,185 when Chadstone same-store sales and the Sydney CBD Centres are included. This metric has increased over 20 per cent since Vicinity was formed in June 2015.

Kelley said investments made in a Wi-fi network operating across the portfolio are providing valuable consumer behavioural data, and delivering insights to inform retail mix and leasing decisions.

“This is a significant progression in the way we are tailoring our offer to meet consumer needs and in the value we can provide to our retailers.”

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