Vicinity sells $631 million in non-core assets

Retail property management firm Vicinity Centres on Wednesday announced the sale of 11 regional and neighbourhood shopping centres for $631 million, bringing it significantly closer to its planned divestment of $1 billion of non-core assets by the end of this year.

The sale includes a portfolio of 10 regional and neighbourhood shopping centres across NSW, Queensland, Western Australia and Victoria to SCP Property Group, conditional on the completion of a capital raising by the Sydney-based property firm, and a neighbourhood shopping centre to a private investor.

The move is part of Vicinity’s non-core asset divestment program, which was announced in June of this year and involves the sale of up to $1 billion of regional and neighbourhood centres. In a statement to the ASX, the property firm said that discussions are progressing with prospective purchasers of three remaining assets included in the company’s divestment program.

“These transactions are a significant achievement and advance our strategy to unlock major potential in the business,” Vicinity Centres’ CEO and managing director, Grant Kelley, said.

“It is an important step in delivering strong and sustainable growth through focusing our directly-owned portfolio on approximately 50 market-leading destination assets, expanding our wholesale funds platform and realising mixed-use opportunities across the portfolio.”

Vicinity will reinvest the proceeds of the transactions into its retail development pipeline and potentially a securities buy-back, which will drive stronger growth in funds from operations (FFO) and net tangible assets on a per security basis.

The aggregate sale price of $631 million reflects a 5.1 per cent discount to the combined book values of the 11 assets as at June 30, 2018, and a weighted average capitalisation rate of 6.9 per cent. Including the interests in 24 assets sold since the 2015 merger of Federation Centres and Novion Property Group, Vicinity has now divested 35 shopping centres for more than $2.5 billion at a 0.5 per cent premium to book value.

Kelley said that Vicinity undertook an extensive campaign to market the 11 non-core assets and said the sale of the portfolio to SCP made “strategic sense” for both parties.

The 11 assets had specialty sales per square metre (SSM) averaging $7,611 s at June 30, 2018. Adjusting for the sale of the assets, Vicinity’s total portfolio specialty SSM will increase by 1.4 per cent to $10,279 from the $10,133 SSM it reported in June 2018.

Vicinity’s FFO guidance for FY19 remains unchanged at 18 to 18.2 cents per security. Assuming the proceeds are used to repay debt in the short-term, gearing would be reduced by approximately 280 basis point.

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