Charter Hall sets scene for $1 billion property play
The sale of a Geelong shopping centre for $117 million has set a precedent for big offshore funds and local real estate trusts crunching the numbers on $1 billion worth of retail assets about to hit the market.
Diversified property fund Charter Hall pounced on Gateway Plaza Leopold, a sub-regional shopping centre on Victoria’s Bellarine Peninsula, paying Australia’s second largest landlord Vicinity Centres a relatively lumpy fully-leased yield of 6.65 per cent.
The 33,510 square metre centre, anchored by a Kmart, Coles, Aldi and Bunnings, was held by a closed-end Vicinity-managed fund, the Vicinity Enhanced Retail Fund.
At a time other shopping centres are attracting record prices, it transacted at a slim 0.3 per cent boost to its book value.
Gateway Leopold is situated in a prominent position on the Bellarine Highway in a fast growing area on Geelong’s fringe where the population is expected to rise steeply, by 63 per cent in 2036.
The area’s demographics and the centre’s focus on convenience retail made it a good fit for Charter Hall, the group’s head of retail Greg Chubb said.
The real estate trust and its Charter Hall Prime Retail Fund will jointly share the asset, freeing up Charter Hall to target further retail acquisitions, Mr Chubb said.
The deal was finalised two days after Vicinity announced it will offload up to $1 billion of its “non-core” sub-regional and neighbourhood shopping centres.
Vicinity operates powerhouse “destination” malls, like Chadstone in Melbourne and the Queen Victoria Building in Sydney, into which it intends to reinvest funds from the sales.
“Following an extensive review of our portfolio, it is clear that we need to focus our resources on creating destinations that provide market-leading shopping, dining and entertainment experiences,” Vicinity chief executive Grant Kelley said on Tuesday.
Mr Kelley would not disclose which centres were on the chopping block.
The properties will hit the market amid sluggish retail conditions, bogged down by subdued consumer spending and stagnant wage growth.
But Vicinity’s assets will find a deep pool of investors because they are located in metropolitan areas, JP Morgan analyst Richard Jones said in a research note on Thursday.
“We have identified 19 assets valued at $2.1 billion which we believe are a drag on Vicinty’s overall portfolio and deem it would be better to potentially divest [them],” Mr Jones said.
JP Morgan’s list of centres likely to be divested includes higher value assets like Broadmeadows Central in Victoria, Warwick Grove in West Australia, Eastlands in Tasmania and Collonades in South Australia.
Other lower-value centres that may be sold are West End Plaza and Lennox Village in NSW, and Sunshine Marketplace and Oakleigh Central in Victoria, JP Morgan said.
Colliers International head of retail investment, Lachlan MacGillivray, who negotiated the Leopold transaction, said buyers would view individual assets on their merits but there was a “major influx of international investors coming into Australia wanting to establish platforms.”
“We haven’t seen any drop-off in demand or pricing on highly sought after assets,” he said.
Gateway Leopold, which underwent an $85 million revamp last year, has a particular mix of tenants that suit Charter Hall’s investment profile.
Mr Chubb said it had multiple supermarkets, a discount department store and convenience focused speciality retailers under the one roof, alongside a Bunnings store.
“Shoppers can get everything they need in the form convenience in the one visit and that is a very powerful proposition,” he said.