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SCA Property Group (ASX: SCP) will become Australia's leading owner and manager of convenience-based shopping centres after picking up 10 assets from Vicinity Centres (ASX: VCX) for $573 million.
The sale forms part of Vicinity's plans to divest non-core sub-regional and neighbourhood shopping centre assets as it shifts attention to entertainment and dining hubs.
Vicinity announced today that it will offload a total of 11 properties for $631 million, with the majority sold to SCA and the eleventh property Belmont Village in Victoria sold to a private investor.
This takes Vicinity's total divestment under a strategic program to 35 shopping centres for a value of $2.5 billion.
"These transactions are a significant achievement and advance our strategy to unlock major potential in the business," says Vicinity CEO Grant Kelley.
"It is an important step in delivering strong and sustainable growth through focusing our directly-owned portfolio on approximately fifty market-leading destination assets, expanding our wholesale funds platform and realising mixed-use opportunities across the portfolio."
Kelley adds the sale of 10 assets to SCA makes "strategic sense for both parties" as Vicinity looks to progress its strategy of owning "highly productive market-leading destination assets".
"We undertook an extensive campaign to market these non-core assets, generating significant interest on both an individual asset and portfolio basis," he says.
The transaction is due for completion later this month, after which SCA will own and manage more than $3.1 billion worth of convenience-based shopping centres.
Included in the suite of centres is the Warnbro Centre in Western Australia which was acquired for $92.9 million. This centre, the most expensive of the 10 sites, has Coles, Woolworths and Big W as its significant anchor tenants.
SCA also acquired three more centres in Western Australia, two in Victoria, two in New South Wales and two in Queensland.
Though quite an expensive purchase, the acquisitions are expected to make an impact on SCA's financials.
The company says the new centres will collectively increase the annualised pro-forma FY19 funds from operations (FFO) per unit by more than 5 per cent.
It also expects the acquisitions to reduce NTA per unit from $2.30 to $2.25 due to transaction costs.
The acquisition will be funded with the proceeds from a combination of a fully underwritten institutional placement to raise approximately $259 million, a non-underwritten unit purchase plan to eligible unitholders in Australia and New Zealand to raise up to $50 million, a divestment of its shareholding in Charter Hall, and a debt facility of up to $365 million.
The property manager says it is looking to reinvigorate some of the centres by "repositioning the tenancy profile further towards non-discretionary retailers and asset level synergies", suggesting certain changes may have to happen.
This latest investment comes off the back of the group's less than spectacular full year results
In early August the company reported a 45.2 per cent profit drop, down to $175.2 million. The retail trust has blamed its lacklustre result on stunted property value growth compared to its prior year.
The company's funds from operations buffered its result, recording a 5.4 percent increase to $114.3 million. Improving its tenancy mix and evolving to more resilient retail categories is a priority for SCA in FY19 as it recognizes the challenging environment.
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