Dexus deal for Westfield Warringah signals hot demand for regional shopping malls

A quarter interest in the Westfield Warringah Mall in Sydney’s northern suburbs has changed hands in a play valuing the centre at more than $1.6bn.

The unlisted Dexus Wholesale Property Fund bought an additional 25 per cent interest in Westfield Warringah Mall, Brookvale for about $410m.

The recovery of trading in Australia’s regional shopping mall industry has been put on display with a quarter interest in the Westfield Warringah Mall in Sydney’s northern suburbs changing hands in a play valuing the centre at more than $1.6bn.

The top end of the retail property industry was rattled by the coronavirus crisis but is making a quick recovery in the lead up to Christmas on the back of high consumer confidence, rising house prices and the reopening of the economy.

While disputes between big landlords and tenants have flared with Vicinity Centres suing Myer for unpaid rent during lockdown, even the tougher line being taken shows the industry expects a strong comeback in retail trading.

The picture is a far cry from the peak era of big malls when Sir Frank Lowy’s Westfield was bestriding the global shopping scene, and many shops are still facing the chill winds of e-commerce as its penetration rates rises, but a new wave of investors are backing the thesis that malls will recover.

Malls are chasing nimble shops which are switching to the omnichannel model and they are also offering themselves up as last mile delivery centres and for click and collect. Once staid suburban malls will also house towers of offices, apartments and health facilities in coming years.

For now, the rush is on to secure positions at what is seen to be a cyclic low point. At Westfield Warringah, one Dexus vehicle has taken the opportunity thrown up by the merger of one of its sister funds with an AMP trust to boost its stake in the Sydney centre.

The unlisted Dexus Wholesale Property Fund bought an additional 25 per cent interest in Westfield Warringah Mall, Brookvale for about $410m, increasing its interest to 50 per cent. Scentre Group, which runs the local Westfield empire, will retain the other 50 per cent interest.

Scentre could have bought the stake that was held by AMP Capital Shopping Centre Fund. But it passed and it instead has been bought by the Dexus fund at a premium price.

Westfield Warringah is a dominant retail centre in Sydney’s Northern Beaches, anchored by Myer and David Jones, alongside Big W and Kmart, Woolworths and Coles, a Hoyts Cinema, and a Bunnings.

The three-level shopping centre has undergone numerous additions and refurbishments and its scale provides opportunities for mixed-use redevelopment and repositioning.

The top end of the retail property industry was rattled by the coronavirus crisis but is making a quick recovery in the lead up to Christmas on the back of high consumer confidence.

“This acquisition increases DWPF’s interest in a well-performing super regional retail asset which is expected to benefit from embedded development opportunities. The acquisition represents relative value compared to other asset classes in a post-pandemic environment,“ DWPF fund manager Michael Sheffield said.

Office and industrial property has soared and even local shopping centres are selling at a premium so some catch up the bigger end had been expected.

The Warringah stake came into play as part of a series of property sales stemming from the merger of the AMP Capital Diversified Property Fund with the Dexus Diversified Trust.

Dexus is quickly selling down assets to satisfy about $2bn of unitholder redemption requests out of the ex-AMP fund. It successfully sold office and industrial assets but the surprise has been the big-ticket mall deals.

Efforts to sell other shopping centre assets out of the former AMP-run fund have also fared well with heavy bidding on a 20 per cent stake in Pacific Fair on the Gold Coast and for a 25 per cent interest in Sydney‘s Macquarie Centre that are tipped to go for more than $700m.

Pre-emptives have been issued to co-owners on the centres, which could see them come further under the sway of superannuation heavyweights UniSuper and Cbus Property.

The pair last month signalled that malls are coming back into vogue by making a $2.2bn investment in the two malls in the country’s largest ever shopping centre deal.

That was followed this month by the largest deal for a city retail asset since the pandemic began, when Hong Kong’s Link REIT snapped up half stakes in three of the country’s best loved shopping centres – The Queen Victoria Building, The Galeries and the Strand Arcade – in the heart of Sydney for $538.2m.

The heritage-listed QVB is the second most visited site in the city after the Opera House, and The Strand Arcade is a unique proposition for local customers, while the Galeries is a lifestyle and cultural destination for fashion, art and dining.

Now, a quarter stake in Indooroopilly Shopping Centre, in Queensland is next on the block and that could attract global interest through agents CBRE and JLL when its launches early next year. The stake is being offered by DWPF and co-owners in that $1.5bn centre include super fund CSC.

The listed retail stocks have also bounced after reporting a recovery in cash collections as lockdowns have come off.

Goldman Sachs analysts Jeffrey Pehl and Daniel Downes said the run of deals showed market demand for high quality retail assets and that retail asset valuations appear to be at a more sustainable level.

“We believe this significant retail transaction supports our view that there continues to be a disconnect between the listed market and the direct market for high quality retail malls,” they said.