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THE biggest retail property deal of the year has been carried out with mall landlord Vicinity Centres (ASX: VCX) and Singaporean wealth fund GIC swapping assets worth $1.1 billion.
Vicinity has entered into contracts to exchange a 49 per cent interest in Chatswood Chase Sydney for 50 per cent interest in GIC's Sydney CBD centres.
The Sydney CBD centres feature iconic retail properties including the Queen Victoria Building, The Galeries, and The Strand Arcade.
Interests in the CBD Centres have been acquired for $556 million on a 5.1 per cent capitalisation rate and the interest in the Chastwood centre has been sold for $562.3 million on a 4.75 per cent capitalisation rate.
Vicinity will assume management of the Sydney CBD Centres and maintain management over the Chatswood centre.
The deal which involves some of Australia's top tier assets was done against the backdrop of a gloomy outlook for the retail sector on the back of weakened consumer demand
"This transaction is strategically significant for Vicinity. We gain exposure to, and the management rights of, three high quality and strongly performing CBD centres in Sydney," says Angus McNaughton, Vicinity CEO and managing director.
Combined, foot traffic through all three CBD Centres is approximately 60 million people per year and generated $590 million in spending this year.
"This is despite significant disruption from the light rail works along George Street to which all three centres have frontage," says McNaughton.
The addition of the CBD Centres to Vicinity's management portfolio will add more than $1.1 billion to their retail assets under management.
Chatswood Chase Sydney is a high-performing shopping centre with more than 11 million consumer visits annually. The centre is anchored by high-performing David Jones, Coles, and Kmart stores and has 170 specialty stores.
The transaction is expected to settle in early 2018 and remain subject to approvals from Sydney City Council, RailCorp, and the Foreign Investment Review Board.
Shares in Vicinity Centres are up 0.38 per cent at around 2pm (AEDT) to $2.68 per share.
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