Institutions active in Australian retail

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Institutions active in Australian retail

June 4, 2012 / By Andrew Quillfeldt

Retail investment activity in Australia continues to strengthen. In 2012 (year to date), transaction volumes have totalled AUD 1.93 billion and are on track to surpass the AUD 3.3 billion recorded in 2011. There continues to be strong investor demand for large premium quality retail assets (greater than AUD 150 million) in Australia from a range of domestic and foreign institutions. Active purchasers of properties in this price bracket are primarily; wholesale funds, superannuation funds and offshore groups. A-REIT’s continue to be active vendors and have sold down half interests in Regional centres in a number of instances, unlocking capital to redeploy for development and investing in existing core assets.

The most recent example of this was the AUD 690.4 million portfolio sale by Centro Retail Australia (CRF). The portfolio, which included 50% ownership stake in three Regional shopping centres, was sold to the privately held Perron Group. The sale price reflects a 3.7% premium to book value and an average yield of 6.1%.

Other examples of A-REIT’s selling down half interests include; the CFS Retail Property Trust (CFX) sale of a 50% share in Myer Centre Brisbane for AUD 366 million in March 2012 to ISPT, a domestic superannuation fund. Also, in October 2011 Westfield Group (WDC) sold a 50% share of Cairns Central for AUD 261 million to Lend Lease’s APPFR, a domestic unlisted fund.

Regional centres are rarely traded. However, in addition to recent sales activity, a number of other assets are currently being marketed in off-market campaigns, including a 50% interest in two centres being offered by Centro Retail Australia, which could further boost 2012 transaction volumes.

Figure 1 shows the variance between sale price and book value on major retail transactions since the start of 2010. Sale prices have now transitioned from reflecting a discount to book value to either in line with, or at a premium to, book value. The strong institutional investor demand for these Regional centres largely reflects the attractive yields and the tightly held nature of this asset class. The average Australian Regional centre yield is currently 6.35% (at Q1 2012) compared with 5.58% at the peak of the market in December 2007. We therefore expect large premium retail assets to be the primary focus of institutional investors and competition for these highly sought-after retail properties is likely to drive yield compression over the short term.

Figure 1