Chadstone drives $408m valuation gain at Vicinity Centres

Overall, Vicinity Centres booked a $408 million valuation gain across 72 properties over the six months to December 31 with the weighted average cap rate across its $16.1 billion portfolio tightening by 15 basis points to 5.45 per cent.

Vicinity also booked valuation gains at its large-format DFO Centres at Homebush and South Wharf and at Box Hill South, but values fell at two of its co-owned regional malls, Roselands in NSW and Galleria in WA ,amid the challenging retail conditions.

“We are very pleased with the portfolio valuation increase of $408 million in the December half and in particular the net $324.1 million or 12.1 per cent uplift in our investment in Chadstone Shopping Centre,” said Vicinity Centres chief executive Grant Kelley.

“Chadstone continues to trade strongly following completion of the $666 million major development in June 2017.”

Weak retail trading
The values of major malls, neighbourhood centre and large format retail centres have continued to rise and cap rates to tighten despite weak retail trading conditions persisting. Last year investors spent a record $9.3 billion on retail property, according to Cushman & Wakefield.

Vicinity and Westfield owner Scentre Group were the two worst-performing A-REITS last year, delivering total negative returns of 3.3 per cent and 4.8 per cent respectively.

In its most recently quarterly update, Vicinity reported that retail sales remained “soft” with total moving average turnover growth of just 0.2 per cent and speciality sales declining by 0.4 per cent.

However, including Chadstone same-store sales, MAT was 1.2 per cent and speciality MAT was 0.8 per cent over the quarter.

“Despite concerns regarding the income and cashflow profile for Australian retail malls (which we share), direct market mall transaction pricing for reasonable quality assets remains very tight,” said Macquarie Securities analyst Rob Freeman.

“Indeed, a 25 per cent stake acquisition in Highpoint and a 50 per cent stake in Indooroopilly both transacted at 4.25 per cent in the second half of 2H17, well below prior and market valuations for similar product.”