This article is from the Australian Property Journal archive
VICINITY Centres and Singapore’s sovereign wealth fund GIC have made a $1.1 billion asset swap in some Australia’s iconic retail properties, including the Queen Victoria Building and Chatswood Chase Sydney.
GIC has acquired a 49% interest in Chatswood Chase for $562.3 million on a 4.75% capitalisation rate, which will continue to be managed by Vicinity. In turn, Vicinity picked up a half-share of the Queen Victoria Building, The Galeries and The Strand Arcade in the CBD for $556.0 million, at a blended cap rate of 5.1%, and will assume management rights of each.
This represents the largest retail sale in the year to date after Blackstone’s proposed $3 billion divestment fell over, and expands the relationship between the two groups, which have partnered on Melbourne CBD’s Emporium and Myer Bourke Street.
It comes just days following the latest official numbers showed a tepid sector environment over September and the quarter, as operators face an uncertain environment with the pending introduction of Amazon and consumers battle weak wages growth and cooling housing market.
Vicinity’s CEO Angus McNaughton said the transaction is strategically significant for the group.
“We gain exposure to, and the management rights of, three high-quality and strongly performing CBD centres in Sydney, Australia’s most populous and most visited CBD,” he said.
Shoppers spent $590 million across the three Sydney CBD centres this year, which currently return combined specialty sales of $23,890 per sqm and specialty MAT growth of 2.4%, and overall MAT growth of 4.0%. They are expected to boost Vicinity’s direct portfolio specialty sales by 5.3%, from $9,417 per sqm to $9.916 per sqm.
“We have identified a number of areas where we can create additional value over time at the Sydney CBD Centres through continued improvement in the tenancy mix, driving ancillary income and operational efficiencies,” McNaughton said.
“These centres will also benefit from significant investment in transport infrastructure taking place over the next few years in Sydney including, in addition to the light rail project, the Sydney Metro rail which will improve access to the CBD from Sydney’s north west and south west.”
They have sat in GIC’s Ipoh Pty Ltd fund since 2003 and add to Vicinity’s current CBD retail portfolio that includes Emporium Melbourne and Brisbane’s The Myer Centre and Queens Plaza. It also owns the Chadstone megamall with John Gandel.
Major regional centre Chatswood Chase Sydney on the north shore has 63,715 sqm of gross lettable area and is nearing a major expansion and redevelopment. It currently receives more than 11 million consumer visits annually and is anchored by David Jones, Coles and Kmart stores and has 170 specialty stores, including a number of premium brands.
In March it placed in the top ten of Shopping Centre News’ 2017 Big Guns for specialty sales and received a $91.8 million, or 8.9% revaluation uplift in July, part of a $345 million increase that prompted a $500 million buyback of around 5% of its shares.
However, with the revelation that moving annual turnover has fallen to 0.2% over the first quarter of the 2018 financial year from 0.4%, and specialty MAT by 0.4%, McNaughton said the group’s sales performance is being impacted by its larger centres that are moving into significant development or tenant remixes, namely Galleria, Chatswood Chase Sydney, The Myer Centre Brisbane and Queens Plaza.
New data from the Australian Bureau of Statistics showed nominal sales growth over September was flat over the month, short of the expected 0.4% increase. Growth of just 0.1% was seen over the quarter, and year-on-year sales was from 2.13% in August to 1.44%.
The most pronounced annual falls in growth were seen in the household goods category, with negative 1.14% growth, as well as hardware and building, down 4.22%, electrical goods retailing, down 1.12% and furniture with 2.98%. Food retailing was the only category to increase, at 2.85%.
AMP Capital’s Diana Mousina said the pressures of soft wages growth and slowing wealth accumulation as home price growth slows were not going to abate any time soon, and would limit household disposable income.
“Retail pricing power is still expected to be constrained by competition, and will probably intensity even further as Amazon enters the market in Australia,” she said.
Lee Kok Sun, chief investment officer, GIC Real Estate said Chatswood Chase has resilient cash-flows and allowed GIC to gain access to new development and enhancement opportunities.
The transaction is expected to settle in early 2018 is subject to approvals by Sydney City Council, RailCorp and the Foreign Investment Review Board.
Australian Property Journal
