Vicinity Centres (VCX) – Acquires centre in Sydney’s west

Vicinity Centres is a major retail property groups with a fully integrated asset management platform and $24 billion in retail assets under management across 52 shopping centres, making it the second largest-listed manager of Australian retail property behind Scentre (SCG). The firm has a direct portfolio with interests in 51 shopping centres (including the DFO Brisbane business) and manages 26 assets on behalf of Strategic Partners. Vicinity Centres was incorporated in 2005.

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Vicinity Centres has acquired a shopping centre in Eastern Creek in Sydney's west for $400 million, implying a 5.7% yield after costs and a capitalisation rate of 6%. The asset was recently developed and is almost fully leased (~99.5%), which underscores its quality and income stability. Given the weight of capital currently targeting retail assets, we expect the sales process was competitive, making Vicinity’s ability to secure the asset at what appears to be a reasonable entry price noteworthy.

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The centre spans approximately 41,000 square metres of gross lettable area on a 15.4-hectare site, across three components: large format retail, outlet retail, and a traditional shopping centre. In our view, the investment case is anchored by its strategic location at the intersection of the M4 and M7 motorways, exposure to an under-supplied Sydney retail market, and the potential to capture rental upside over time. Key considerations for the centre on the downside include the absence of trading history, which limits visibility on tenant performance, and the leasehold structure. The land ultimately reverts to the NSW Government in 85 years, which may temper long-term valuation support.

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At the portfolio level, Vicinity remains well positioned, supported by low gearing and relatively stable earnings growth. The stock is trading broadly in line with fair value, around our $2.50 price target, so we maintain a Hold recommendation.

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