Shopping mall giant Vicinity offloads malls as retail downturn bites


YFG Shopping Centres will take control of Vicinity’s quarter stake at Mt Ommaney Centre in Queensland for $94.5 million and Chris Lock’s IP Generation purchased the sub-regional Corio Central in Victoria for $101 million.

The Queensland centre changed hands at a 3.3 per cent premium to its book value, while Corio’s new owner got the asset at a 3.8 per cent discount.

Earlier this year, Vicinity said it had shelved plans to sell up to 12 underperforming shopping centres in the face of “unforgiving” investor sentiment.

Following the most recent transactions Vicinity reduced guidance for its funds from operations by 0.2 cents to between 17.6 and 17.8 cents, a downward tilt related to the timing of the sales and its assumption there would be no reinvestment of the proceeds.

Chief executive Grant Kelley said the deals were in line with the group’s strategy of focusing its portfolio on market-leading destinations.

“We are pleased to have achieved solid pricing for these assets, following improved investor demand since we announced in August 2019 that we would not proceed with any further material divestments in the current environment,” he said.

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The sales will strengthen Vicinity’s balance sheet and provide a 90 basis point reduction in gearing, with the proceeds used to repay debt in the short term, he said.

Analysts are still bearish on the retail sector despite an investor skew towards office and industrial landlords making its yields more attractive.

Vicinity has underperformed its REIT peers by about 19 per cent over the last 1.5 years and its 6 per cent dividend yields were “sector-leading,” investment bank Morgan Stanley said in a recent report.

But nevertheless, “landlords have already lowered their rent outlook in the last three years, suggesting the market is still finding the bottom,” it said.

Vicinity’s share price was down marginally at $2.66.

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