Money

Grand $4b mall sale as landlords retreat from retail headwinds

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Written by The ReReport
As seen in the Source link, written by commercialrealestate.com.au on 2019-03-11 23:08:48

Close to $4 billion in malls could be pushed into the market as major landlords, both listed property trusts and wholesale funds, look to reduce their exposure to softness in the sector.

In the wash-up from earnings season, JPMorgan analysts have tallied the scale of divestments flagged by landlords, with most retail REITs looking to sell assets.

Scentre, the owner and manager of Westfield malls in Australia, wants to improve its balance sheet, while Vicinity and Stockland are hoping to dispose of assets to improve portfolio quality.

“Scentre, we believe, is looking to sell down a stake (50 per cent) in perhaps three assets to a joint-venture partner which could realise around $1.6 billion,” analysts Richard Jones, Ben Brayshaw and Krzysztof Kaczmarek wrote in a recent client note.

Another $250 million potentially could be raised from the sale of St Lukes in New Zealand, with proceeds from the big sell-down to fund $700 million in buybacks by Scentre, which is led by Peter Allen.

Rival mall owner Vicinity has another four assets on the market valued at around $310 million, while a plan to establish a $1 billion wholesale property fund in a joint venture with Singapore’s Keppel Capital, seeded with malls from Vicinity’s portfolio, has been put on the slow track.

There are divestments in the wind at fund manager GPT as well, as it looks to reweight the spread of its exposure away from retail and toward logistics.

On JPMorgan’s analysis, GPT’s aim to reduce its exposure to retail to 40 per cent of assets implies divesting $800 million of retail property. At the same time its wholesale shopping centre fund could sell as much as $600 million of property.

Earnings revisions

Diversified player Stockland has also sniffed the breeze. It has a further $280 million of its planned $400 million in asset sales well progressed. In addition, though, it has now flagged an additional $600 million of assets in an expanded sell-down.

As well, non-listed sellers include Blackstone, the Future Fund and Lendlease’s APPF Retail fund.

The flood of assets could affect value, expressed through cap rates, an industry metric which moves in indirect proportion generally to book value.

“We expect retail cap rate expansion in 2019 due to excess assets on the market, lowering market rent growth and increasing capex assumptions,” the analysts wrote.

“Asset sales are taking longer to transact and valuations are under pressure.”

As reporting season wrapped up, the S&P/ASX 200 REITs Index, the sector’s main index, was up 1.8 per cent in February, well below the ASX 200 which delivered a very strong 6 per cent total return.

On a 12-month basis, however, the top 200 property stocks index posted a total return of 19 per cent, outperforming the broader index by around 12 per cent.

The JPMorgan analysis showed share price performance for REITs was highly correlated with earnings revisions.

“Retail REITs disappointed with some downward valuation pressure and asset sales took longer than guided.

“In contrast, fund managers delivered EPS upgrades driven by cap rate compression and growing performance fees.”