Oct 1 2018 at 12:15 AM Updated Oct 1 2018 at 12:15 AM There's...

• Oct 1 2018 at 12:15 AM
• Updated Oct 1 2018 at 12:15 AM

There's more than malls for Vicinity and Scentre: UBS

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A mixed-use redevelopment at its Box Hill mall is one of several that Vicinity is mulling. supplied
by Nick Lenaghan

A mixed-use makeover of Vicinity Centres' portfolio may provide more gains for the nation's second-largest retail landlord than many in the market have yet anticipated, according to UBS analysts.

The UBS duo, James Druce and Grant McCasker, took a tour through the Melbourne shopping centres held in the portfolios of Vicinity and Scentre, the owner and manager of Westfield in Australia, with an eye to redevelopment and future mixed-use opportunities.

"We walked away incrementally more positive with greater comfort Melbourne retail should remain resilient ... amidst standout population growth," they wrote in a recent note to clients.

That population growth has averaged about 2.5 per cent annually since 2011. Vicinity has about half its portfolio in Victoria, including the nation's biggest mall Chadstone,while Scentre's weighting to the southern state is around 15 per cent.
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Sunshine Marketplace would benefit from the proposed airport rail link in Melbourne.

Vicinity's mixed-use opportunities are "large and clearly demand-driven", according to UBS, after visits to Northlands, Box Hill in the city's east, along with Chadstone, Victoria Gardens in Richmond and Sunshine Marketplace in the west.


"Vicinity's land on transit/activity hubs at Box Hill and Sunshine Marketplace are set to benefit most," the analysts wrote.

"The market continues to give Vicinity no value for its mixed-use opportunities. Once various zoning/development approvals are obtained, starting in financial year 2020, we expect this will change."
Twelve projects earmarked

Vicinity ascribed about $1 billion to the uplift it would get from an ambitious redevelopment program, unveiled by chief executive Grant Kelley at the full-year results in August.

Mr Kelley's team has earmarked 12 significant mixed-use projects so far. Such development would be undertaken using a "capital-light approach" through partnerships with residential developers. Office and hotel projects could be undertaken using Vicinity's balance sheet.

Another 10 or so more modest projects could also be rolled out through its portfolio. Vicinity has already taken steps down the mixed-use path, including office and hotel developments at Chadstone and striking a deal with Jeff Xu's Golden Age to develop apartments above The Glen in Melbourne's south-east.

The property trust has also flagged $2 billion in divestments. Half of that proposed total is through direct sales into the market, while the other half is through a 50:50 joint venture with Singapore's Keppel Capital to manage a new wholesale property fund.

Vicinity is fielding a plethora of bids on the $1 billion portfolio of 10 or so assets it is selling, according to a recent Street Talk report, with Shopping Centres Australasia Property Group among the potential contenders.

The UBS analysts describe Box Hill shopping centre – which straddles two precincts – as one of Vicinity's most important opportunities, catering to a large Asian community in the area and with capacity for a 300,000-square-metre expansion.

Prospects for redevelopment of Sunshine Marketplace have risen dramatically as the state government steps up plans for a rail link to the airport that would pass nearby.

With a smaller footprint in Melbourne, only one of Scentre's malls, at Knox, was visited.

Scentre is down 4 per cent in the past three months after a mixed half-year result. But the UBS team expect its operating metrics – leasing spreads and specialty sales – to improve on its first half, based on recent sales and employment momentum.