Keppel Corporation has signed an agreement with ASX-listed Vicinity Centres to launch a A$1 billion ($743 million) retail property fund. The new vehicle, which is being formed at a time when Singaporean companies are increasingly active in Australia, will be Keppel’s first investment in a property fund targeting retail.
Keppel Capital Ventures, a subsidiary of Keppel Capital, the S$29 billion AUM asset management arm of Keppel Corporation signed the memorandum of understanding with Vicinity, with government-linked conglomerate announcing the billion-dollar deal on 6 August.
“The proposed fund, which will be Keppel Capital’s first retail-focused real estate fund, will expand our track record in Australian real estate investments beyond office developments to include retail properties,” said Christina Tan, CEO of Keppel Capital.
Australian Assets Meet Asian Investors at the Mall
Managed by a joint venture equally owned by the two parties, the Vicinity Keppel Australia Retail Fund (VKF), is planned to close by the first quarter of 2019, with each partner ultimately owning about 10 percent. Vicinity will be contributing A$1 billion of assets from its portfolio of shopping centres to the fund, with a set of eight unspecified properties said to have already been chosen.
The Sydney Morning Herald reports that the Broadmeadows Central shopping centre in Victoria, along with Warwick Grove in Western Australia and the Colonnades in South Australia may be among the assets included in the initial portfolio.
The partners say that they plan to leverage Keppel Capital’s extensive network particularly among Asian players, to attract additional investors to the vehicle.
The fund “will allow us to connect our investors to a select diversified portfolio of Australian retail assets that generate stable cashflow with growth potential,” said Tan. In terms of new assets, VKF will will be looking for properties with a diverse base of tenants and balanced lease expiries. Steady yields and the potential for appreciation will also be important.
Aussie Retail Landlord Finds More Partners
Vicinity, which has assets under management of A$26 billion, is one of the largest retail landlords in Australia and has interests in 74 shopping centres and co-owns 29 other properties. The company merged with Novion in 2015 and has been in divestment mode ever since, selling down about A$4 billion of real estate as it works to strengthen its core portfolio.
Vicinity plans to use proceeds from the new fund for the development of its main properties and to buy back shares. The exercise is part of the company’s ongoing capital recycling programme, with assets transferred to the new fund primarily what Vicinity considers to be non-core. Vicinity has been particularly focussed on refining its strategy as the retail environment in Australia remains challenging.
Singaporean Investors Continue to Head Over the Equator
The shopping centre fund is the latest in a burst of antipodal activity by Singaporean property investors with different division of Keppel having announced two separate Aussie deals on the same day.
Also on 7 August, Keppel DC Reit announced that it will develop a data centre located in Macquarie Business Park in Sydney — setting up some 86,000 square feet of lettable area for parking servers. The total investment for the Sydney cloud shed will range from A$26.0 million to A$36.0 million, according to Keppel, and construction will be completed by 2020.
In May of this year, Warburg Pincus-backed ARA Asset Management purchased 19.5 percent of Cromwell Property, and in February Suchad Chiaranussati’s SC Capital Partners proposed the $252 million redevelopment of a site in Sydney.