Vicinity's garage sale continues
Recommendation
Vicinity Centres has announced the sale of 11 shopping centres for $631 million, continuing its program of selling non-core assets to increase the overall quality of its portfolio. This sale follows the disposal in August of $1 billion worth of shopping centres into a wholesale fund to be owned 50:50 with Singapore's Keppel Capital.
Ten of the 11 shopping centres in this transaction have been bought by Shopping Centres Australasia Property Group, a trust that specialises in small neighbourhood shopping malls based around a supermarket and some personal services such as a medical centre and a chemist. The price represents a discount of 5% to book value, and an initial rental yield of close to 7.5%.
Vicinity was created in 2015 through the merger of Novion Property and Federation Centres (formerly Centro Properties). The result was a high level of debt and a hotchpotch in terms of quality, ranging from Australia's premier shopping centre - Chadstone in Melbourne - to small neighbourhood centres.
So the trust has been solving both problems by selling off lower-quality assets. Including this transaction, it has sold 35 shopping centres for $2.1 billion over the past three years, reducing its gearing from 29% to 25%.
Despite the lost rental income from the latest sales, Vicinity has maintained its profit guidance for 2019. To achieve it, though, it may buy back some of its own shares - although that would bump up the gearing again. HOLD
Shopping Centres Australasia will be conducting an equity raising to raise roughly half of the $573 million purchase price and has raised its 2019 distribution guidance by 3% to 14.7 cents per unit. HOLD