This article is from the Australian Property Journal archive
ISPT's CEO Daryl Browning does not believe that the Australian real estate market has very limited opportunities. Browning said there are currently more properties available for sale compared to the boom times.
Last Friday, the $8 billion ISPT bought a 50% stake in four sub-regional shopping centres from Federation Centres, formerly Centro Retail Australia, for $371.4 million.
The four sub-regional shopping centres are Mandurah in Western Australia, Cranbourne and Karingal in Victoria and Warriewood in New South Wales. The convenience centre is Halls Head also located in Mandurah, WA.
Browning said the acquisition of these centres is part of ISPT’s strategy of increasing its weight in the retail property sector.
He added that three years ago, ISPT made a commitment to increase its investments in retail property after it fell below 30%. Following this deal, ISPT is edging closer to allocating 40% of its portfolio to retail.
“We wanted to diversify our portfolio because we were heavily weighted in offices,” he added.
In last three years, ISPT has been involved in several deals, including the Myer Centre Brisbane; Perth City Central; Broadway On The Mall in Brisbane; and Westfield Doncaster just to name a few.
Browning said he disagreed with market perception that there are very limited opportunities on offer in Australia.
“Yes we have more foreign investors in Australia, but that has a lot to do with risks. Investors are generally risk averse and Australia is stable, so that is why we are attracting foreign pension funds. Foreign investors just add to the competition,” he added.
Browning said that currently there are more than enough opportunities for cashed up investors.
“It is about having the funding… Look in the last three or four years, there has been a steady stream of properties (for sale). There are more investment opportunities available now than there were during the boom times. Look at our acquisitions, Doncaster, Myer Centre Brisbane, the deals with Centro (Federation Centres),” he pointed out.
Looking ahead, Browning said ISPT is on the lookout for more retail properties.
“There are challenges ahead over the next few years for the retail sector, but it is very much a mix bag. Our strategy is to acquire dominant centres,” he added.
This transaction represents a 2.9% premium to the 30 June 2012 book value (pre-transaction costs) and average yield of 7.49%.
Federation Centres CEO Steven Sewell said when combined with the previous Perron Group strategic alliance, on completion of this transaction with ISPT, Federation Centres will have undertaken co-ownership in eight centres with a gross value of $2.1 billion.
“With more than $1 billion in capital raised from these co-ownership arrangements, we will be well positioned to grow our business through redevelopment projects across our portfolio of quality Australian shopping centres and further acquisitions of syndicate properties,” Sewell said.
Australia’s king of retail deals, Jones Lang LaSalle’s Simon Rooney, negotiated the deal on behalf of Federation Centres.
Rooney said this move by Federation Centres is further evidence of the dominant retail investment theme in 2012 of large AREITs recycling capital. Of the $6.3 billion of retail investment transactions in Australia in 2012, approximately half (45%) of these were transacted through AREITs recycling capital.
“JLL has a further $1.5 billion worth of retail property in due diligence to potentially transact before June on behalf of vendors that are employing this approach.
“The high level of capital being committed to the retail property sector through acquisitions and development implies that many investors are looking through the short term challenges in the retail environment and are confident of the long term outlook.
“Activity in the sub-regional retail sector particularly is gaining momentum and there is a growing pool of investors seeking access to this generally oversold asset class. Sub-regional centre yields are close to their peak for the current cycle and are attractive to a range of investor types. To put this in perspective, the spread between the average regional and sub-regional yields are at their widest levels in the last decade, at 137 basis points. Accordingly, we are seeing increasing levels of capital being allocated to the sector and in 2012 $983.2 million of sub-regional stock transacted, up 51% from 2011,” Rooney said.
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