Raising capital: Future Fund eyes Joondalup exit in $450m shopping centre play

Australia’s sovereign wealth fund is looking to sell a 50 per cent stake in Lakeside Joondalup in Perth.

The premium end of the shopping centre market is poised for more action as Australia’s sovereign wealth fund looks to sell off a half interest in a major Perth mall in a deal that could reset shopping centre values.

After a five-year hiatus, the Future Fund is again looking to sell off its half stake in the Lakeside Joondalup Shopping Centre, with the interest in the $900m Perth retail complex being pitched to investors as an exposure to a large scale regional mall with mixed-use potential.

The move to exit the WA centre comes as the sovereign wealth fund has been trimming its exposure to the local retail property market, although it remains heavily invested in offshore markets, and is also chasing higher returns on debt deals.

Major superannuation funds have been lightening their allocation to traditional properties, including shopping centres and office towers, but have kept investing, primarily offshore, in areas like multifamily and logistics.

The fund’s annual report said a ­rerating of property valuations had occurred, but it had added new managers across the year “to position us for interesting opportunities ahead”.

But it appears less focused on the local property market. After it was set up, the fund had invested in wholesale vehicles and bought stakes in malls and office towers, with the Perth asset one of its largest holdings.

The Future Fund is looking to sell a 50 per cent stake in Lakeside Joondalup in Perth.

The offer of the stake – worth about $450m – via CBRE’s Simon Rooney effectively kicks the centre into play, as it is also co-owned by the Lendlease-managed Australian Prime Property Fund Retail.

That vehicle is also being repositioned in the wake of dealing with hefty redemptions, and is yet to reveal its position on the rights it has under co-ownership agreements.

Lakeside Joondalup is a near 100,000sq m mall and anchor tenants include Myer, Kmart, Big W, Target, Coles, Woolworths and Aldi, as well as Hoyts cinemas.

There are close to 20 mini majors and more than 260 speciality stores and kiosks. The centre has been performing well, partly on the back of the resource-heavy WA economy and growth in Perth’s northern suburbs.

Both the Lendlease fund and a new investor could pursue a mixed use development, with master planning already undertaken for the near 24ha site. It could house an entertainment, leisure and lifestyle precinct, and office, hotel or unit towers in future.

Despite the dramatic fall in the values of large malls, there has been a swing back in sentiment as the fresh deals that have been struck have reset the market at lower levels.

In 2018, the Future Fund took the asset to market with expectations of about $600m, and the latest offer reflects the recalibration.

The shopping centre dominates Joondalup and is one of WA’s top three performing centres, with turnover at $780m on the 2022 SCN Big Guns ranking. It has exceptionally strong speciality productivity of more than $12,300 a square metre.

Originally developed by ING Real Estate and opened in 1994, the centre has been through three major expansions and could be repositioned. It was sold in 2010 by the ING ­Retail Property Fund for $475m to the Future Fund and the Lendlease fund, who together undertook a $330m redevelopment.

Lakeside Joondalup in Perth.

The offer means there is about $2.5bn worth of centres in play across the country, as large malls have come out of the pandemic trading stronger than expected and with tenants willing to pay higher rents.

The Lendlease-run fund is selling its Cairns Central complex in Far North Queensland, with funds house Haben in talks to ­secure the asset for close to $400m.

Investors have also bid on the half stake in the massive Erina Fair shopping centre in NSW being sold for more than $400m.

The sale of the stake in the regional shopping centre market by South Korea’s National Pension Service has drawn some interest in the entire asset.

In Perth, Hong Kong-based private equity and real estate house PAG last month joined with local funds house Fawkner to acquire the Midland Gate shopping centre for about $465m. It was sold by a mandate client and an unlisted partnership run by Vicinity Centres, which was backed by the Future Fund and the CPP Investment Board.

The parties and agent declined to comment. But Perth is already seeing some activity, with Singapore’s GIC putting its half-interest in the $500m Westfield Whitford City up for sale as liquidity returns to the top end of the shopping centre market.

Other centres in play include a 50 per cent stake in Westfield Tea Tree Plaza in Adelaide’s northeastern suburbs that is on the block for about $350m.

The strong performance of smaller assets, and the need for listed landlords to cut gearing, is also seeing selling at the smaller end.

Listed supermarket landlord ­Region Property Group says its Woolworths and Coles-anchored properties are proving resilient in the face of the squeeze on consumers, but it will look to sell off about $200m worth of properties.

Chief executive Anthony Mellowes told the company’s annual meeting this week that non-­discretionary tenants were driving resilient sales and low arrears.

Supermarket sales for the 12 months to the end of September were 4.2 per cent above the prior year, while non-discretionary speciality tenants grew by 6.2 per cent.

Speciality leasing activity has continued momentum in deal flow with positive leasing spreads continuing, particularly in our renewal leases at 4.7 per cent. It had 4.3 per cent average fixed rent reviews on its deals – up from 3.8 per cent in June.

Inside Lakeside Joondalup in Perth.

Mr Mellowes said the company had identified ten assets worth about $200m that could be divested.

It has already contracted to sell Collingwood Park Shopping Centre in Queensland at book value, at a capitalisation rate of 5.25 per cent, and will shortly start selling its Leura and Drouin shopping centres, via JLL’s retail team.

The company kept its guidance for this financial year despite tough macroeconomic conditions including higher interest rates and rising inflation.

Region is a believer in quality retail assets and last year acquired five assets for $180m and sold off Carrara Shopping Centre for $23.5m – 2.2 per cent above book value – while also disposing of its final stake in rival Charter Hall Retail REIT.

The company is mainly directed towards local supermarket offerings, including last mile logistics.

“We believe in the near to medium term, we will benefit from inflation through increased turnover rent from our anchor tenants and increased affordability of rent for speciality tenants as their sales increase. However, we expect that the rapidly rising rates and inflationary costs will still pose as a challenge,” Region chairman Steven Crane said.

Jarden analyst Lou Pirenc said the sales and leasing metrics showed the portfolio’s resilience, despite signs of a slowdown in growth momentum and leasing spreads.

But for the best assets, tough times may bring good news and fresh sales.