Vicinity Centres snares prized Perth asset paying $420m for half of Lakeside Joondalup

The retail centre owner, which today announced a weaker underlying profit performance in FY24, says Lakeside Joondalup, located on Perth’s northside, has been “a strategic acquisition target for some time”.

Along with the acquisition, Vicinity has secured the property management and retail development management rights for Lakeside Joondalup, an asset it describes as a “premium, fortress-style centre located in one of Perth’s principal activity centres with a large and growing population and achieving almost $800 million in annual retail sales”.

“With our focus on property excellence, together with our scalable retailer partnerships, we believe Lakeside Joondalup has further growth potential, and the acquisition is accretive to our earnings in year one,” says Vicinity.

The acquisition by Vicinity Centres was revealed in the group’s FY24 full-year profit results which edged lower at an operational level despite near full occupancy across its portfolio.

Vicinity posted a statutory net profit after tax of $547.1 million, up from $271.5 million in FY23, but its funds from operations dipped 2.9 per cent to $664.6 million following a 1.3 per cent fall in net operating income to $888.4 million. The drop in rental income was achieved despite occupancy rising to 99.3 per cent from 98.8 per cent a year earlier.

Vicinity has maintained an interest in 11 centres in Western Australia following the Lakeside Joondalup acquisition, as the group also recently sold Maddington Central for a reported $107 million in a deal that settled in the current financial year.

“The acquisition of Lakeside Joondalup, the forthcoming redevelopment of Galleria and divestment of four non-strategic assets in Western Australia, has been a deliberate strategy to recycle and redeploy capital to strengthen our asset portfolio in Western Australia,” says Vicinity.

“With our strong balance sheet and disciplined approach to capital allocation, we believe that our ability and willingness to invest in the vibrancy and quality of our asset portfolio continues to be a competitive advantage.”

Lakeside Joondalup has a gross lettable area of 99,832sqm and is anchored by Myer, Kmart, Big W, Target, Coles, Woolworths, Aldi and Hoyts Cinemas.

The sale of the centre was handled by CBRE on behalf of the Future Fund with the remaining interest still held by Lendlease’s (ASX: LLC) APPF Retail Fund.

CBRE’s head of retail capital markets Simon Rooney says the asset drew strong competition from potential buyers nationally who were drawn by its strategic growth corridor location and mixed-use development potential.

“The acquisition marks the re-entry of REITs (real estate investment trusts) into Australia’s regional shopping centre investment market,” says Rooney.

“The Joondalup transaction is the first such acquisition since Scentre Group’s (ASX: SCG) $720 million acquisition of a 50 per cent stake in Westfield Eastgardens in Sydney in mid-2018.

“It signals renewed interest from both REITs and unlisted wholesale funds in this market sector, which is expected to gather momentum throughout the second half of this year.

“The value proposition for regional shopping centres has become increasingly compelling for investors, given superior comparative returns on offer, rebased sustainable income profiles and robust performance fundamentals, as compared to most alternative commercial property asset classes.”

CBRE notes the Lakeside deal follows the Dexus Wholesale Shopping Centre Fund’s sale of its 50 per cent stake in Adelaide’s Westfield Tea Tree Plaza to a Scentre Group-Barrenjoey unlisted fund for $308 million.

Other notable deals include Cairns Central in Queensland for $390 million and Midland Gate in Western Australia for $465 million.

The Midland Gate deal, which saw Faulkner Property partner with Hong Kong-based alternative asset manager PAG, was announced in November, leaving the Lakeside acquisition as the biggest retail property deal for WA since then.