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Vicinity Market Update & AGM

Vicinity issued a market update this week with results from the 3rd Quarter of 2018, coinciding with their AGM.

Vicinity Strategy

Over the past few years, Vicinity have been executing a clear strategy to drive stronger and more sustainable growth. They have sold interests in 35 retail assets for $2.5 billion and reinvested those proceeds into value accretive developments, acquisitions, and a securities buy-back. Earlier this year, they announced two major strategic initiatives – a divestment program of up to $1 billion of non-core assets and the proposed establishment of a new $1 billion wholesale fund.

In August, Vicinity announced a strategy based on three profit drivers;

1. Focusing on directly owned market-leading destinations;

Vicinity believe that 50 of their market-leading destination centres are highly productive, and contain major rental growth potential. Eight of these 50 assets are also earmarked with near-term development opportunities. The divestment of $1Bn of non core assets reflects part of this strategy.

2. Realising mixed-use opportunities across the portfolio,

Well-located retail assets, particularly those close to transport hubs, will be required to broaden their scope beyond just retail. The value which mixed-use represents is not reflected in the value of these assets today, which are valued based on retail income only.

3. Expanding the wholesale funds platform.

The establishment of a $1 billion wholesale fund in a joint-venture with Keppel Capital will help Vicinity access substantial offshore capital partners enhancing the fee stream.

Q3 Highlights include;

• Comparable specialty store productivity improved 3.9% to $10,531 per sqm over the quarter

• Combined specialty and mini majors moving annual turnover (MAT) growth was 2.1%, strengthening from 1.6% at June 2018. For the portfolio of approximately 50 market-leading destinations (destination portfolio), these growth figures improved to 2.6% at September 2018 from 2.2% at June 2018

• Two major developments opened in October 2018 both 100% leased, Perth’s first DFO and stage three of The Glen in Melbourne

• Sold 11 non-core assets for $631 million in October 2018, three months ahead of schedule

• Commenced buy back of securities - 17.6 million securities (0.5% of issued capital) acquired for $46.2 million at an 11.8% discount to net tangible assets per security (NTA)

• Commenced stage two of $73 million solar investment program across 22 shopping centres

• Ranked third most sustainable real estate company globally in the DJSI survey

• FY19 guidance reiterated, with funds from operations (FFO) expected of 18.0 to 18.2 cents per security, reflecting 3.4% to 4.6% growth in FFO on a comparable basis, and the distribution payout ratio expected to be at the upper end of the target range of 95% to 100% of adjusted funds from operations (AFFO) or 85% to 90% of FFO.

See Market Update Presentation

See AGM Address & Presentation