Adelaide’s Westfield Marion in year’s biggest shopping centre deal

The sale of half of Westfield Marion surprised the industry.
The sale of half of Westfield Marion surprised the industry.

The shopping centre industry has been rocked by the largest deal of the year, with a half stake in the $1.34bn Westfield Marion in Adelai­de selling to Singapore-listed SPH REIT, in a transaction showing an 8% discount to the mall’s December value.

The sale of Adelaide’s biggest centre will reverberate across the sector as the pricing may affect malls across Australia while they are under pressure from struggling department store anchors and sluggish consumer spending.

It could prompt concern of more widespread value falls across the sector, which is wrest­ling with a shift to turn malls into leisure destinations that offer more high-value services as e-commerce is ripping through the area.

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But is also establishes that deman­d remains — at a price — for the best malls and may even support the share prices of listed A-REITS, including Westfield landlord Scentre Group and Vicinity Centres as they are trading at a discount.

The half-interest in the centre was sold by the Lendlease-­managed APPF Retail fund for about $670 million. This shows a discount of about 8% to Scen­tre’s December 2018 book value for its half stake and implied a capitalisation rate of about 5.5-5.6%, JPMorgan said before the sale.

The analyst dubbed the sale a “negative print” but pointed out it followed Scentre’s sale of a half stake in Sydney’s Burwood Westfield at a 4% premium in May on a 4.8% cap rate.

“The sale is consistent with our view that cap rates will soften about 50 basis points for regional malls in 2019,” JPMorgan said.

The Adelaide centre is one of the largest in the country but some industry players have said it is not comparable to top Sydney and Melbourne assets and the Lendlease-run fund was under pressure to sell assets.

Unlisted retail property trusts have been hit by redemptions with investors demanding an exit.

The Australian revealed last year that the Lendlease vehicle was hit by more than $2 billion of redemption requests and its experience has been mirrored across the industry, though rival landlords have so far denied problems.

But the revaluations sweeping the shopping centre industry come as little surprise, with Vicinity Centres selling two assets this week, one in Queensland and another­ in Victoria for close to $200 million.

Vicinity sold its 25% stake in Brisbane’s Mount Om­maney and a centre near Geelong in Victoria. While they were sold at a tight discount to their valuations at June 30, they showed substantial falls since 2017.

Mount Ommaney has sold at a 10% discount to its December 2017 book value and Corio sold at a 22% discount to its December 2017 value.

The Lendlease fund’s accounts confirmed the trust was facing hefty redemptions and it has flagged further strategies to get back on track.

The $4.36 billion fund’s accounts showed it had redemption equating to about $2.28 billion. It has until November 2020 to satisfy the requests. The company says it is “pursuing a liquidity plan which may include a combination of equit­y, debt and asset disposals”.

The Adelaide sale was brokered by real estate agents Simon Rooney of CBRE and Lachlan MacGillivray of Colliers International.

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