This article is from the Australian Property Journal archive
CHARTER Hall Long WALE REIT (CLW) and Abacus Property Group have taken one-third stakes in Myer’s Melbourne flagship store for $135.2 million each, marking another major retail transaction on Bourke Street Mall and for the Charter Hall platform.
The share is one of three acquisitions announced by CLW yesterday totalling $267 million, also including a distribution centre leased to Simon National Carriers in Brisbane’s Carole Park, and a Bunnings in the Perth suburb of Baldivis.
CLW and Abacus will join malls landlord Vicinity Centres as co-owners of the Myer Melbourne flagship at 314-336 Bourke Street, having both bought their stakes from Nuveen Real Estate.
One of the most prominent buildings in the Melbourne CBD’s premier shopping precinct, the nine-level, 40,000 sqm building is leased to Myer for another 10.5 years. The transaction was struck at a 6% passing yield.
“The acquisitions are strategically located, high quality industrial and logistics and long WALE retail properties that are leased to national tenants. This includes the Myer Bourke Street Mall property in Melbourne, which together with CLW’s existing investment in the David Jones Castlereagh Street store in Sydney, representing two of Australia’s most iconic CBD buildings,” Avi Anger, fund manager of CLW said.
CLW was part of a Charter Hall consortium that bought the David Jones flagship store on a prime Sydney CBD corner for $510 million at the end of 2020. The department store agreed to a 20-year triple-net leaseback that reflected an initial yield of 5.0%, having completed a $200 million capital works program the previous year.
In a similar deal next to Myer on Bourke Street Mall, David Jones’ parent company Woolworths Holdings one year ago offloaded the six-storey department store building at 299 Bourke Street to Newmark Capital for $121 million, to move the menswear offering from the building to the larger flagship store opposite, at 310 Bourke Street. Woolworths had been looking to free up capital and rationalise store space in a bid to combat the shift towards online shopping that had hit the retail sector before the pandemic.
Rival department store Myer had similarly been struggling with the changing retail winds, ahead of the impact of the pandemic on city malls across the country that Vicinity has seen hit its asset values.
Abacus managing director, Steven Sewell said, “It is pleasing to be able to take advantage of this intergenerational opportunity with longer term repositioning potential”.
“This transaction aligns with our strategic priority of acquiring commercial assets in select locations where we see amenity and infrastructure improvements that we believe will ultimately translate to strong tenant demand. With the potential for a degree of repositioning, this is a great opportunity for the group, together with its partners, to implement active asset management plans and drive superior returns from the asset.”
Newmark Capital plans to reposition the David Jones store next door.
CLW upgrades forecast
Anger said CLW’s trio of acquisitions reflect a passing yield of 5.1%, weighted average lease expiry of 11.2 years and favourable rent review structures.
It acquired the Bunnings on the corner of Safety Bay Road and Baldivis Road from Perth-based Acure Asset Management, which purchased the property for $29.25 million in 2015. The property is home to two long-term, established tenants in Bunnings Baldivis and Petstock and has a total gross lettable area of 15,443 sqm and a site area of 34,000 sqm.
Acure managing director Angelo Del Borrello said that the sale made good sense for investors in Acure’s Hammersley Unit Trust, especially in light of market conditions and historically low interest rates.
“This journey was not without challenge, as when we purchased the property back in 2015 via our Hammersley Unit Trust, it was originally a Masters Home Improvement site, and that business exited the market late in 2016.
“When Masters exited the Market, we were able to negotiate a new lease agreement with Bunnings to come into the space, which was absolutely critical for our investors.”
Investor internal rate of return equated to 17.6% per annum.
Barney Dear of Savills facilitated the off-market transaction, which garnered a record yield for Western Australia.
CLW’s acquisitions will be funded from the REIT’s existing debt capacity, including the proceeds of the recently completed $200 million issuance of 8.5-year Australian dollar medium term notes.
They are expected to settle this month and be materially accretive to prior FY22 operating earnings per security growth guidance, and as a result upgraded FY22 operating EPS guidance to growth of no less than 4.5% over forecast. It reaffirmed its FY21 operating EPS guidance of 29.2c per security, representing growth of 3.2% on FY20.
CLW’s portfolio will grow to 467 assets worth $5.547 billion, with a WALE of 13.2 years and 97.8% occupancy.
