Hotels, apartments, offices coming to Aussie shopping centres
Mall landlord Vicinity Centres has unveiled a push into mixed-use development projects that could see office buildings, apartments and hotels added to its shopping centres around the country.
New chief executive Grant Kelley outlined a vision to add value to the group’s retail assets, particularly those in affluent areas or with good public transport links, at his first results conference since taking over from former boss Angus McNaughton six weeks ago.
The move comes amid a challenging retail environment, with a range of mall landlords facing a shift to online shopping and consumers cautious on the back of weak wages growth.
Commercial Insights: Subscribe to receive the latest news and updates
Vicinity says it will keep remixing its centres where necessary and investing in its portfolio, but emphasises that its stores are still 99.5% leased.
Kelley has visited 65 of Vicinity’s malls since joining and says he is impressed with the operating platform and the team.
“Based on my asset review, it is clear that Vicinity has an opportunity-rich real estate portfolio,” Kelley says.
“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, while preserving and complementing the existing retail assets.
“Building on work already undertaken, we are carefully reviewing how these holdings could support additional mixed-use opportunities across the portfolio.”
Vicinity Centres owns DFO South Wharf.
The group expects to report back to investors mid-year with more detail about the mixed-use strategy. It has already started to focus on some mixed-use opportunities, such as by selling the air rights to develop apartments over Melbourne’s The Glen shopping centre to Golden Age Group, and planning an MGallery by Sofitel hotel for Chadstone shopping centre.
The group also announced an asset swap with GIC in the half, securing stakes in the Queen Victoria Building, The Galeries and The Strand Arcade in Sydney in exchange for an interest in Chatswood Chase.
The strategy came as profit after tax fell 17% to $755.9 million in the six months to December 31, compared with the prior corresponding period, with the figure boosted by revaluation gains of $417 million. Funds from operations edged down 0.8% to $357.7 million, while revenue rose 3.9% to $662.7 million in the half.
Specialty sales fell 0.7% but rose 0.8% when adjusted for tenant administrations and including Chadstone same-store sales. Investors sent Vicinity shares 2.1% lower to $2.54 in afternoon trade.
Macquarie analyst Rob Freeman backed the mixed-use strategy and says Vicinity is well-placed to address the soft retail environment with a strong balance sheet and focus on value creation. “We have written about alternate use and low site coverage for some time and view these changes as positive,” Freeman wrote in a note to clients.
The group announced an interim distribution of 8.1c per security. Vicinity’s shares closed at $2.56, down 1.5%.
This article originally appeared on www.theaustralian.com.au/property.
