Lendlease mall investors finally get their money back
Property giant Lendlease has concluded a five-year effort to meet $2 billion worth of redemptions in its flagship shopping mall fund – representing close to half the fund’s value – with the sale of a Queensland mall to a private fund manager on Wednesday night.
The $390 million sale of Cairns Central to busy Melbourne-based fund manager Fawkner Property was struck on a yield between 7.5 per cent to 8 per cent, and at a slight discount to its $400 million September book value.
As the second-largest mall deal this year, the transaction will set a significant benchmark on valuations for the retail real estate sector, in a cycle that has been dominated by divestment by major platforms to bargain-hunting private syndicator platforms.
For Lendlease, the transaction brings to a close its protracted effort to meet withdrawal requests by big investors in its APPF Retail fund. The unlisted fund’s institutional investors have included some of Australia’s biggest industry funds such as UniSuper and Hostplus.
“With the strategic divestment of Cairns Central, APPF Retail will be able to close out the remaining redemption requests in the fund, providing liquidity to those investors who requested it,” APPF Retail fund manager Anne MacSporran said.
The drawn-out process has tracked the recent history of dislocation across the retail real estate sector which has weighed on values. The initial challenge posed by the rise of e-commerce was followed by the disruption of the pandemic lockdowns and most recently by surging interest rates. Key players in the sector will be hopeful the Cairns deal signals an end to the upheaval.
“The outlook for Australian retail is positive,” Ms MacSporran said.
“With sales having rebounded strongly post pandemic, and now stabilising to more normalised levels, the sector is supported by robust retail fundamentals, with growing demand and limited supply of retail space being one of the driving forces for future growth.”
Other major landlords sell
The redemption process was initiated in late 2018, when the holders of 1.1 million of APPF Retail’s 2.2 million units logged their withdrawal requests. Since then, the $4.2 billion wholesale fund has progressively offloaded shopping malls to generate the liquidity needed to meet those requests.
In total, the Lendlease-run fund has divested $2.1 billion worth of malls, including a half-stake Adelaide’s Westfield Marion for $670 million, Melbourne’s Caroline Springs Square for $136.5 million and a 75 per cent interest in Craigieburn for $300 million. It has also sold Caneland Central for $280 million and a half stake in Harbour Town Gold Coast for $358 million.
Colliers’ Lachlan MacGillivray and McVay Real Estate’s Sam McVay managed the sale of Cairns Central for Lendlease.
Other major landlords, including listed real estate investment trusts or REITs, have been selling malls as headwinds hit the sector.
On Tuesday, Stockland announced its divestment of a Townsville mall for $123.5 million to private fund manager Haben and Charter Hall divested two malls to private buyers for a total of $225.5 million. Vicinity Centres’ Dianella Plaza is also set to be divested for about $76 million.
The listed landlords’ sell-down provided an opportunity for private syndicators such as Fawkner to scoop up assets on generous initial yields. Fawkner has been one of the busiest to play the counter-cyclical theme, acquiring around $1.7 billion of retail assets over the past two years.
Among its acquisitions were Perth’s Midland Gate for $465 million, the biggest retail deal of 2023 so far. It also bought Lendlease’s Settlement City for $102.4 million, on a yield of 7.77 per cent, a fortnight ago.
Fawkner struck again this week with the Cairns Central deal, after two previous approaches from buyers for the mall came to naught. In May, McConaghy Properties had been looking to acquire Cairns Central in a $430 million deal.
Three months later, Haben entered into discussions about acquiring the asset for about $400 million but those talks also dissipated. The syndicator opted to buy another 50 per cent stake in Stockland Townsville to take full control of that asset instead, industry sources said.
CBRE’s Simon Rooney, who advised and represented Fawkner on the deal, said the fund manager had done well to raise the required capital to buy Cairns Central.
“Domestic private capital and increasingly offshore institutional investors are strategically teaming up with specialist domestic managers like Fawkner Property and are proactively engaging and seeking out high-quality regional shopping centre opportunities,” Mr Rooney said.
