Vicinity have sold Mildura Central, a Woolworths & Target anchored Centre for $81.1m and crystallised a loss of $28.65m.
The property was held by Vicinity Enhanced Retail Fund, a wholesale fund managed by Vicinity Centres, which acquired the mall in 2015 for $109.75m on a passing yield of 7%.
The fund was originally set up by Colonial First State Global Asset Management and seeded with $600m from eight local and offshore wholesale investors in 2013. It targeted subregional shopping centres worth between $25m and $125m.
The Fund’s portfolio included Keilor Shopping Centre (sold for $113m), Riverside Plaza in Queanbeyan (sold for $60m), Bathurst City Centre (sold for $70m), and the Lidcombe Centre (sold for $145m), Gateway Plaza Leopold (sold for $117m). The Mildura Central asset was the final asset to be sold by the fund. In total, the fund has realised gross sale proceeds of approximately $586m, well short of the $600m of investor capital.
Mildura Central is the dominant shopping centre in the Region, occupying a 7.35-ha site in a key retail precinct just 3.5km south-west of the Mildura CBD. The 20,197sqm Centre is anchored by a Woolworths and Target discount department store and a mix of specialty retailers that serve a trade area which extends up to 100 kms to the north, incorporating parts of Victoria, South Australia and New South Wales.
The property was acquired by IP Generation on a passing yield reported to be above 9%.
Vicinity were keen to off load the asset several years ago and had hoped to achieve in excess of $100m, however the impacts of droughts on regional communities and more recently from COVID has left the Centre with a much lower level of rental income.
Our Views
We understand that the reported yield of “above 9%” understates the transaction pricing which is likely to be closer to 9.5%.
This is an example of why we do not support major investments in coastal and regional towns (unless under pinned by long term secure sources of income). Assets in coastal and regional towns are more susceptible to the varying economic conditions of the surrounding industry.
Sub regional sized retail centres are also on our “avoid” list as half of the tenants in the Centre rely on discretionary spending from its customers. This in turn requires a larger catchment area to support the tenancies and makes them more susceptible to economic downturns. The larger catchment area usually introduces additional competitive forces such as convenient access and alternative venues.
Whilst Target are closing stores and converting many stores to KMart, the Mildura store is not on either list, suggesting it is safe for now, we expect this may change at the lease expiry.
The opportunity for the purchaser of this centre is to negotiate the removal of Target and to re-configure the Centre, however as Mildura appears to be oversupplied with retail offerings, a quick turnaround is unlikely. Thus the reason for selling the Centre at a deep discount.
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