Vicinity polishes a $23 billion shopping mall portfolio

Vicinity Centres managing director Angus McNaughton says the shopping centre owner has sufficient scale and diversity as ...
Vicinity Centres managing director Angus McNaughton says the shopping centre owner has sufficient scale and diversity as it nears the end of a $1.5 billion divestment program. Paul Jeffers

The second largest listed landlord of local real estate, Vicinity Centres, is more focused on improving the quality of its shopping centres than on getting any bigger.

Managing director Angus McNaughton said the shopping centre owner already has sufficient scale and diversity, with a portfolio worth more than $23 billion that is home to more than 9000 retailers.

"We don't need any more scale to be successful," Mr McNaughton told the Australian Property Institute forum last week in Melbourne. "We're going to grow organically."

The retail giant is nearing the end of a $1.5 billion sell-down in assets that it first flagged in December 2015.

The divestment program initially targeted a $1 billion in divestment before it was expanded to $1.5 billion in May last year.

The sell-down has proceeded steadily since then. A four-asset portfolio of shopping centres was sold to funds giant Blackstone and local property trust Mirvac for $840 million.

Smaller assets have also been offloaded, ranging from a a bulky goods centre at Indooroopilly in Queensland for $85 million to a neighbourhood centre in Brisbane sold for $24 million.

"The program is almost complete and we've seen a significant improvement in the metrics across the portfolio," Mr McNaughton said.

Vicinity has also made some acquisitions, including two Perth malls for $320 million just before the divestment program was announced and a Brisbane DFO facility for $55 million.

The main focus for Vicinity remains its ambitious redevelopment pipeline. The official tally of identified projects is $3.7 billion but, as Mr McNaughton revealed in his address, there is another $2 to $3 billion in a "shadow pipeline".

"The successful completion of the development pipeline is critical to our ongoing success," he said.

One of the biggest projects in progress is the $660 million expansion of Chadstone shopping centre.The first stage of the project was opened amid great fanfare last year and Vicinity is also  considering building a hotel there.

 "There's a distinct lack of hotels in that region. Watch this space," the Vicinity chief said..

Also under way is the $350 million redevelopment of the Mandurah Forum mall just south of Perth. Upcoming is the $450 million overhaul of The Glen in Melbourne.

And as its quality improves Vicinity's portfolio has gained in value.  The last revaluation booked a $508 million gain in portfolio value as the cap rate tightened to 5.75 per cent. 

Vicinity's divestment program has caught the attention of analysts, including Citi's Adrian Dark who believes it is sensible for retail landlords to be more active sellers of assets now.

Even though there is still some scope for improvement in property values, the 'buy and hold' strategy commonly adopted by mall owners is now outmoded, Mr Dark wrote in a recent note.

Mr Dark views favourably recent disposal programs by Vicinity, Charter Hall Retail REIT and Shopping Centres Australasia.

"We believe these sales help improve their portfolio quality, while enhancing their financial strength.

"In a favourable environment, this helps positions these groups to reinvest, while in an unfavourable one, it helps make them more defensive."