Garden City sale bolsters shopping centre sentiment

Redevelopment plans were put on ice mid-year at the Garden City Shopping Centre.
Redevelopment plans were put on ice mid-year at the Garden City Shopping Centre.

The shopping centre industry has been bolstered by the sale of a half-stake in one of Perth’s largest properties, the $1.1bn Garden City, to local Westfield owner, the Scentre Group.

The deal is being hailed as a sign investors still have faith in the under-pressure sector with the best malls changing hands even as lower quality properties languish on the market. The transaction shows a capitalisation rate of about 4.75% and a passing income yield of about 5%, signalling the reopening of the market for shopping centres.

But the market is active again.

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Just last month, Singapore’s SPH REIT and investment bank Moelis swooped on a half-share in Westfield Marion in Adelaide for $670 million. That deal was struck at a 9% discount to the December book value of the property’s co-owner, Scentre, as Lendlease’s APPF Retail fund sold out.

The most recent Perth transaction indicates the market is stabilising and could also see deep-pocketed offshore funds return to the retail sector.

It was brokered by Colliers International’s Lachlan MacGillivray and CBRE’s Simon Rooney.

MacGillivray says Garden City is one of the most dominant shopping centres in Australia and is ranked in the top five regional centres nationally for specialty MAT per square metre.

‘This is the highest specialty productivity for a regional centre that has transacted in the last 10 years,” he says.

In defiance of gloom about the health the retail sector, MacGillivray adds it has an average spend of $68 per person, placing the mall in the top three centres nationally on this metric.

The sale of Garden City took this year’s total regional centre sales to $1.82 billion, just $115 million shy of last year’s record, and a number of offshore players chased the asset.

Rooney says investors are seeing attractive “relative value” in the sector and moving on high quality retail plays. “We expect the Garden City sale … to kickstart local investors to re-enter the sector and strategically reshape and build high quality retail portfolios into the next cycle,” he says.

The $575 million sale was the largest retail transaction in Western Australia and reflected a 3.6% premium to the asset’s September valuation. But it was still about 5% off a valuation a year ago.

The centre is on an 18.6ha site with significant development potential. It is anchored by retailers David Jones, Myer, Kmart, Woolworths, Coles and Hoyts Cinema.

The AMP Capital Diversified Property Fund sold the 50% stake in the 72,843sqm centre and will retain the remaining interest.

Fund manager Brett Williams says the outcome follows an extensive sale process.

“Encouraged by recent investor appetite in high-quality shopping centres, our strategy was to introduce a joint venture partner to reduce asset concentration and provide further diversification for our investors,” he says.

AMP Capital had a $750 million development on the agenda and Scentre will now undertake a smaller project. Scentre held development rights for that expansion and also picked up the centre’s management in the deal.

AMP Capital and Scentre already co-own centres including Liverpool, Southland, Tea Tree Plaza, and Warringah Mall, but split up many of their holdings earlier in the decade.

“We are excited to expand our operating business by adding the rebranded Westfield Booragoon to our leading living centre portfolio,” Scentre CEO Peter Allen says.

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