This article is from the Australian Property Journal archive
THE Charter Hall Retail REIT has bought the Rosebud Plaza shopping centre in Victoria's Mornington Peninsula, for $100 million from CFS Retail Property Trust.
The sale represents a 1.7% premium to book value.
CFX fund manager Michael Gorman said the sale is part of the trust’s strategy to divest non-core sub-regional shopping centres.
Since acquiring the centre in July 1998, Rosebud Plaza has provided a total internal rate of return of 12.9% for CFX investors, he pointed out.
Located 85 km south of Melbourne, Rosebud Plaza was acquired by CFX in 1998 for $28.1 million and the centre completed a $35.0 million expansion in 2006. With a total of 24,100 sqm of space, the centre houses K-Mart, Target, Coles and Safeway and over 60 retail specialty stores.
The proceeds will be used initially to retire debt, resulting in gearing reducing from approximately 29.9% to 29.1%.
Charter Hall Retail REIT’s fund manager Scott Dundas said the acquisition is consistent with the trust’s strategy of owning supermarket anchored shopping centres with a focus on nondiscretionary retail spending. The property is forecast to deliver a year one yield of 7.8%.
“The property is a strongly performing sub-regional shopping centre and the transaction will result in improved gearing and liquidity, enabling us to take advantage of future acquisition opportunities. It further enhances our position as Australia’s leading owner of non-discretionary retail properties providing investors with a secure and growing income stream,” he added.
The acquisition will be partially funded by an equity raising comprising a fully underwritten institutional placement of $80 million, and conditional pro-rata placement to Charter Hall Group of $8 million.
The offer price of $3.801 per unit, representing a 14.5% premium to the REIT’s 30 June 2013 NTA, a 1.0% discount to the REIT’s closing price on 21 November 2013 and a 3.6% discount to the five day volume weighted average price. At the offer price, the new units issued under the Offer are forecast to deliver a 7.8% and 7.2%2 FY14 operating earnings per unit yield and FY14 distribution per unit yield respectively.
Dundas said the centre is expected to be neutral to the REIT’s FY14 operating earnings.
However analysts were not as rosy about the acquisition.
Morgan Stanley analyst John Lee said the trust continues the trend away from neighbourhood centres to sub-regional centres and its weighting to relatively riskier sub-regional centres is now 41%, up from 26% in Jun-11
“In addition, Rosebud Plaza screens quite poorly within our mall analysis framework. Observations from our Shopping Centre Handbook note that Rosebud Plaza is classified as a ‘Survivor’ asset given its low tenant quality & low potential mall spend.
“However, the catchment is forecast to have a high level of population growth in the next five years. Its performance could very well be determined by how well CQR manage the asset from here. Overall a survivor asset is our second lowest quality classification of a mall,” Lee said.
Meanwhile selling agent Jones Lang LaSalle’s Australian head of retail investment Simon Rooney said activity in sub-regional centres has been ramping up in the last 12 months and momentum is getting much stronger.
Total sub-regional transactions for 2013 are now in excess of $1.66 billion for 2013 year-to-date, an increase of 69% on 2012 and an increase of 168% on the current 10 year average.
“Sub-regional yields currently range between 6.5% and 10.0% with a median of 7.66% as at Q3/2013, which reflects a 156 basis point spread between the median regional shopping centre yield of 6.1%. This represents the widest spread between sub-regional and regional shopping centre yields in the past decade.
“Accordingly, there is a growing pool of capital being allocated to this sub-sector of the retail investment market which is seeking to capitalise on the attractive yields available on sub-regional centres,” Rooney said.
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