Savills divisional director of valuations Stuart Fox, who was presenting at the Australian Property Institute Victorian State of the Market, shared his thoughts on the much malign $13.5 billion Centro portfolio.
He believes the Centro portfolio has been undervalued by sentiment compared to its peers with similar retail real estate portfolios i.e Stockland.
However he acknowledged that whilst Centro’s portfolio might be a similar size to let’s say a Stockland, Centro has fewer significant assets.
Fox said every detail of the Centro sale is being over exposed, such as buyers who are or might be looking at the portfolio.
He joked that these “interests” are sometimes — a one note scribbled on a post-it.
But Fox said Centro does have attractive assets which buyers would be looking at, namely the Galeria in WA, the Glen in Victoria and Centro Colonnades in SA.
Fox’s view echoes that of global investment manager LaSalle Investment Management. In an interview with Australian Property Journal last week, LaSalle’s investment strategy international director Jacques Gordon said buyers are looking at Centro’s portfolio and cherry picking the assets.
He added that those prized Centro assets which LaSalle would look at, every other investor is interested as well. However in the United States, he added there are a lot of secondary properties.
Meanwhile Fox also said at the API State of the Market conference that property investors will shift focus to redevelopments and expansions of their shopping centres in the year ahead as there are limited opportunities on the market.
He said the retail property landscape has had limited investment opportunities due to a significant withdrawal of stock by institutions and lenders and financiers displaying patience.
He pointed out an example, which was the sale of Sunshine Marketplace which was pulled just days before settlement because the vendor was able to refinance.
According to Savills’ research, retail property transactions by value and number are well below the peak of 2006 and 2007 when there were over 160 and 200 transactions respectively to the tune of $5.5 billion and $6.5 billion.
Since then, transactions have hovered around 100-120 per annum between 2008 and 2010, around $2 billion to $3.3 billion.
When examined closely 2006 and 2007 saw a greater share of deals worth $100 million plus compared to 2008 and 2009, those transactions were scant.
In 2010, the $100 million plus bracket saw a recovery but most deals transaction remain between the $10 million to $50 million bracket. The higher end of the market was bolstered by the sale of Karrinyup, Westfield Doncaster, Lakeside Joondalup, Westfield Whitford City and Highpoint.
Fox said of the current offerings, like the Woolworths portfolio, the terms are not as attractive as they may seem.
He added that although the Woolworths portfolio offered a 70 year lease term, it had no market rent review… so in effect the owners would not see much growth and at the same time would be responsible for outgoings costs which no doubt would increase over time.
Meanwhile Fox said institutions have completely turned off the bulky goods sector.
And whilst the recent purchase by CFS Retail Property Trust of the Direct Factory Outlet centres was the exception, he added that the trust “cherry picked” the best properties.
Instead he believes institutions are going for regional and sub regional assets.
“The global financial crisis has created a spread of yields recognising the different sectors.
“Before 2007, there was not much yield spread between the regional, sub regional and bulky goods assets,” he added.
But now he said bulky goods yields have shot up from 8.5% to 10.5%, whilst at the same time regional centre yields have expanded from 5.5% to 6.5%; sub regional from 6% to 8% and neighbourhood centres from 7% to 8.5%.
Australian Property Journal
