Region Group ends two-year drought with $74m mall deal
Region Group, the country’s biggest owner of smaller suburban malls, has made its first acquisition in almost two years – and its first in Canberra – after paying $74 million for Mirvac’s Cooleman Court shopping centre.
The deal comes amid a resurgence of both private and institutional capital into sub-regional malls and neighbourhood centres, which are typically anchored by a big supermarket and have a high proportion of non-discretionary specialty tenants.
Earlier this week, ASX-listed Vicinity Centres and its co-investor Challenger sold the Karratha City shopping centre in WA’s Pilbara mining region for $95.9 million to Melbourne syndicator Fawkner Property.
Led by Anthony Mellowes, Region Group, embarked on a program last year to divest up to $200 million of assets to strengthen its balance sheet after higher interest rates started eating into its earnings and trimmed values within its $4.4 billion portfolio.
Its shift back into acquisitions signals overall confidence in current mall valuations and cap-rate settings following writedowns across the sector.
Region’s deal for Cooleman Court was struck at slightly above the mall’s December 31 book value of $73 million but incorporates the expected valuation gain from the expansion of the Woolworths supermarket within the centre, which is due to be completed by Christmas. The mall had a peak value of $76.5 million at the end of December 2021.
Known by locals as “Coolo”, the 10,469 sq m neighbourhood mall in Weston, 12.5 km south-west of the Canberra CBD, is anchored by Woolworths and Aldi supermarkets, and includes a Reject Shop, Best & Less and 33 specialty tenants.
Region Group acquired Cooleman Court on an initial yield of 5.5 per cent, but with the potential to lift that return to 5.8 per cent through leasing vacant space in the mall. Region’s portfolio trades on an average cap rate of just over 6 per cent.
The acquisition of Coolo was Region Group’s first since it acquired a portfolio of five neighbourhood malls from Centuria in July 2022 for $180 million on a yield of about 6 per cent.
For Mirvac, the divestment is part of its plans to sell non-core assets as it battles the headwinds of higher interest rates, exposure to the struggling CBD office market and weak first-home buyer demand for housing.
“This transaction reaffirms the market demand for dominant convenience-based shopping centres and the participation from listed capital for properties core to their mandate,” said JLL’s Sam Hatcher and Nick Willis who brokered the deal.
According to JLL analysis, neighbourhood mall sales in the first quarter of this year were nearly 20 per cent above the 10-year average.
Other metropolitan neighbourhood mall sales concluded over the quarter include Centuria’s divestment of West Ryde Marketplace and Pemulwuy Marketplace in Western Sydney for a combined $100 million to HMC Capital and Revelop respectively and Cedar Woods’ sale of the Williams Landing Shopping Centre in Melbourne’s west for $60 million to the HomeCo Daily Needs REIT.
In a further sign of institutional appetite for non-discretionary focused retail assets, wealth management giant MLC Asset Management has bought the newly built Bayview Centre near Wollongong on the NSW South Coast for $57 million on a cap rate of 5.75 per cent.
The large-format retail complex was developed by Griffith Group and opened in December. It sold fully leased with a tenant mix that includes Beacon Lighting, Super Cheap Auto, JB Hi-Fi and Amart Furniture.
James Wilson and Ben Wilkinson from Colliers brokered the sale.
“The addition of the Bayview Centre to our Property Plus portfolio is a good example of our well-planned rotation out of commercial office and into the large format retail sector,” said Simon Gross, head of property at MLC Asset Management.
