Scentre buys into Perth mall in benchmark deal
Nick LenaghanProperty editor
Dec 6, 2019 – 2.13pm
Scentre, the owner of Westfield malls in Australia, has taken a $570 million half stake in one of Perth's largest malls, Garden City, in a closely watched deal which could set a fresh benchmark for values in the battered retail sector.
In Western Australia's largest ever retail property deal, the 50 per cent stake in Garden City Booragoon, Perth, includes long-term property management, brand and development rights.
A half stake in the Garden City Booragoon shopping centre in Perth has been sold for $570 million.
The mall is held in an unlisted property fund run by AMP Capital, which will remain the owner of the remaining half stake.
The deal will be of intense interest to valuers and major investors for the light it sheds on pricing in a sector which is battling headwinds from sluggish consumer sentiment and the rise of e-commerce.
Even with the inclusion of the management and development rights, the price for a half stake represents around a 6 per cent discount on the mall's last officially recorded book value of $1.212 billion for the entire asset.
That December 2018 value was included in the fund's financial results for the 2018 year, lodged earlier this year when it was given a 4.75 per cent cap rate.
AMP Capital, however, is happy with the result because it was struck on a 3.6 per cent premium to the asset's most recent valuation of around $1.1 billion for the June and September quarters.
The fund manager put the mall on the market in July this year with a view to selling the entire shopping centre or bringing in a co-owner.
The latest valuations would have taken into account that the mall is being prepared for a potential redevelopment, with many of its tenants on short-term or so-called "holdover" leases.
"This is an excellent outcome for our investors," said Brett Williams, the fund manager for the AMP Capital Diversified Property Fund.
"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."
The 72,843 square metre centre features six majors, eight mini majors and more than 160 specialty stores.
Redevelopment plans
Scentre is already working on plans to redevelop the mall, which is 13.5 kilometres south-west of the Perth CBD in a trade area with a population of more than 500,000.
"Opportunities to purchase the best assets like Booragoon are rare," said Scentre chief executive Peter Allen.
"This acquisition follows the transactions we executed earlier in the year which released $2.1 billion of capital, allowing us to pursue strategic and long-term value-creating opportunities, such as this one today."
Scentre said the acquisition price represented a "stabilised economic yield" of approximately 5.5 per cent, given that the mall's current income has been hit by preparations for the previous redevelopment plans.
Colliers International's Lachlan McGillivray and CBRE's Simon Rooney negotiated the sale on behalf of the AMP Capital fund.
The Garden City deal comes amid intense scrutiny on valuations in the retail property sector. British investment house Fidelity has warned that the Australian market will not be spared a global unwinding in retail valuations.
Last month, Lendlease sold a half stake in Westfield Marion in Adelaide, which it co-owns with Scentre, to SPH REIT, for $670 million, a discount to book value of more than 9 per cent.
Seasonally adjusted retail sales were flat in October, adding further concerns about weak consumption and a slow economy.
In an early note on the Garden City deal, Macquarie analysts took heart from the fact Scentre's acquisition came at a 3.6 per cent premium to most recent book value.
Based on that result, their interpretation was that "high quality malls are relatively defensive with limited downside risk to asset values" and that "mid- and low-quality mall asset values are still at risk".
Nick Lenaghan edits the property section, which covers all aspects, from residential real estate and housing and construction to commercial property – office, retail, industrial – and major ASX-listed developers and real estate investment trusts. Connect with Nick on Twitter. Email Nick at nlenaghan@afr.com
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