Vicinity and GIC in year’s biggest deal with $1.1bn mall swap

Given their size, the biggest ­retail property deal of the year ­cements the trend towards joint ventures for large investments.

The groups will exchange a 49% stake in Vicinity’s Chatswood Chase in Sydney, worth $562.3 million, for a 50% stake in GIC’s Queen Victoria Building, The Galeries and The Strand Arcade, worth $556 million.

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The deal involves top-tier ­assets and could be a shot in the arm for the premium end of the retail property market.

The agreement comes amid worries over the outlook for retailers and retail landlords given consumer caution and the trend to online commerce, but analysts have tipped the issues to be concentrated in mid-tier centres with the best centres likely to be more insulated.

The swap allows Vicinity to gain exposure to the Sydney CBD centres without raising equity, given its shares have fallen more than 10 per cent since the start of the year. Vicinity will keep managing Chatswood Chase and will start managing the Sydney CBD centres on settlement. The two groups have partnered on Emporium Melbourne and Myer Bourke St.

The deal comes after Dexus and one of its funds bought a half stake in the office and retail MLC Centre in Sydney for $722.6 million, AMP Capital and UniSuper took almost half of the office with retail Wynyard Place Sydney development for a price tipped to be about $900 million total, and AMP Capital showed interest in a $1 billion stake in Brisbane’s Indooroopilly Shopping Centre.

Sydney’s Chatswood Chase shopping centre. Picture: Adam Ward.

The 10-year average for joint venture retail deals is about $1.2 billion per year on JLL figures.

Vicinity chief executive Angus McNaughton says the deal will provide exposure to three “iconic” CBD assets with boutique retailers, boutique food offerings and good customer experience, plus a new light rail stop soon to be finished outside QVB.

“These are going to be more resilient assets in terms of the impact of online, so the resilience is a very important part of our decision to do the asset swap,” McNaughton says.

The purchase means Vicinity owns CBD properties in each of Sydney, Melbourne and Brisbane, providing a point of difference for retailers, he says. “It’s very efficient to be able to deal with one landlord across multiple locations and that’s one of the scale benefits that Vicinity can bring.”

Vicinity had 13 joint-venture partners in its portfolio, and expanding its relationship with existing partner GIC was a “very good way” of proceeding. CLSA says in a client note the deal is a positive for Vicinity as it would be earnings accretive and increase assets under management.

Folkestone Maxim Asset Management managing director Winston Sammut says the deal allows Vicinity to reduce its exposure to Chatswood Chase and the likely redevelopment spend needed in the near future. GIC Real Estate chief investment officer Lee Kok Sun says the deal allows it to gain access to new development and enhancement opportunities.

The transaction is expected to settle early next year, subject to approval from the Foreign Investment Review Board, Sydney City Council and RailCorp.

Vicinity shares rose 0.4% to $2.68 on the back of the news.

This article originally appeared on www.theaustralian.com.au/property.