Central Coast gem Erina Fair to hit the block

Lendlease has set the scene for the largest shopping centre sale of the year with the sale of Erina Fair, as its flagship retail fund remains in play.

Lendlease’s APPF Retail and South Korea's National Pension Service will sell Erina Fair

Property company Lendlease has set the scene for the largest shopping centre sale of the year by readying to put its half interest in the sprawling Erina Fair on NSW’s Central Coast on the block.

The centre is worth about $800m and was put in play about two years ago when Lendlease’s partner on the asset, South Korea’s National Pension Service, put its half stake up for sale.

The process drew out as buyers were keen on the entire asset, rather than a half interest, so the move by Lendlease’s Australian Prime Property Fund Retail will result in a full interest in the centre and management offered, which is expected to set off a contest drawing in big players including Scentre and Vicinity Centres.

A series of fund managers have also been buying larger shopping centres that are being unloaded by institutions. They include Haben, Fawkner and IP Generation, which has been acquired by MA Financial.

Lendlease’s move comes as the fund faces a liquidity event in which some super funds are expected to exit. But a sale would also position it to undertake its planned urban redevelopment strategy, in which apartments would be built at some of its remaining centres.

The fund has been hit with investor concerns about its strategy and management, partly spurred by its sale of the management rights of two centres it co-owns with GPT. Both groups have previously denied reports of dissent between them over the future of the assets they co-own: Sunshine Plaza in Queensland and Macarthur Square in Sydney.

Selling out of Erina Fair centre would mean the fund was a smaller, more focused vehicle, with the backing of investors who wanted to remain invested with the manager.

Some dissatisfied investors have been casting around for alternatives, with a manager switch to Mirvac across the APPF empire under consideration by some large funds. But Lendlease has insisted that its funds are not for sale and the APPF business, which spans $10bn worth of assets, remains integral to its operations.

Erina Fair is one of the prizes of Australian retail, and the full interest is coming up when property values in the sector have stabilised and listed companies are trading strongly. Shopping centres are also benefiting from a lack of new supply at a time when the population is rising strongly and interest rates are falling.

Agents are yet to be appointed to sell the complex, which is the largest single-level shopping centre in the southern hemisphere.

Lendlease has close ties with the National Pension Service of Korea, which appointed it to manage the $1.2bn Aurora Place in Sydney. NPS also backed the development of Medibank’s national headquarters in Melbourne.

The pair now want to optimise the mall’s overall value and capitalise on growing demand for quality retail assets, as there are few other assets for sale aside from Blackstone’s Top Ryde City in Sydney.

The offer is the first time APPF Retail has put its stake in the property on the market. Analysts see the sale as backing the fund’s strategy for balance sheet flexibility and future growth, and would also give it the firepower for new acquisitions and development, where its investors and partners can see the upside.

APPF Retail is a top quartile fund that has outperformed the MSCI/Mercer benchmark over the past five years.

Lendlease declined to comment.

Erina Fair is the largest shopping centre on the NSW Central Coast and has drawn a wide range of customer demographics and tourists.

The 112,000sq m centre draws 11 million customers annually and is 98 per cent-occupied. The land-rich 40.8ha site provides significant opportunities to unlock value through development.

Anchors include Myer, Kmart, Big W, Uniqlo, Woolworths, Coles and Aldi plus more than 300 specialty stores and entertainment and dining outlets. The centre was built in 1987 and there is the potential for mixed-use development on parts of the site.