Lendlease makes $242m subregional portfolio exit

Funds management house HMC Capital has snapped up two shopping centres from a Lendlease-managed trust as it seeks to grow its empire.

HMC Capital has acquired Southlands Boulevarde.

Funds management house HMC Capital has snapped up two shopping centres from a Lendlease-managed trust for $242.5m as it seeks to grow its empire.

The sale of the bulk of the three-strong Lendlease portfolio shows the retail property market is picking up despite the tougher deal-making environment prompted by higher interest rates.

The deals shows that subregional retail assets are still selling as investor chase certain returns at time from centres trading above pre-Covid levels at a time when larger malls are still hard to shift.

The Lendlease Sub-Regional Retail Fund sold Menai Marketplace in Sydney and Southlands Boulevarde in Perth to HMC Capital.

HMC is bullish about its ability to overhaul at least one of the assets which it has picked up and the final asset in the Lendlease portfolio, Port Macquarie’s Settlement City on the NSW Mid North Coast, is being chased by a superannuation fund, which would take the overall value of the portfolio sale to about $350m.

The HomeCo Daily Needs REIT will pick up Southlands Boulevarde, a supermarket-anchored daily needs centre in metropolitan Perth for $92.5m.

HMC said that its unlisted Last Mile Logistics fund, which was on track for a target first close equity raising of $500m in the first half of 2023 with backers including supermarket giant Woolworths, would acquire Menai Marketplace for $150m.

HMC is billing the last mile fund as a strategy which will give the daily needs trust a right of first offer over assets once they have been repositioned into core daily needs centres.

Southlands Boulevarde is highly productive, generating about $139m of turnover with about 80 per cent of income weighted to daily needs tenants. An Aldi is opening at the 22,401sq m centre, adding to the Woolworths and Coles outlets.

HMC says the last mile fund will target core plus returns of a 10 per cent-plus from repositioning well-located and strategic real estate into daily needs retailer focused infrastructure.

The chair of the listed daily needs trust, Simon Shakesheff, said the group would partner with HMC on the “complementary growth initiative” to build a market leading omni-channel distribution platform. “This relatively small capital investment has the potential to create a significant growth pipeline for HDN in the future,” he said.

The convenience-based subregional centres have a strong non-discretionary focus and drew strong interest from buyers, prompting the portfolio split.

CBRE’s Simon Rooney and James Douglas and JLL’s Nick Willis and Sam Hatcher handled the sale of the portfolio.

“Despite the increased cost of debt following the RBA’s tightening of monetary policy, retail spending has remained resilient at 17.9 per cent growth to September, while capital remains robust for quality, strong performing, non-discretionary focused shopping centres,” Mr Rooney said.

The deal was the largest subregional retail portfolio transaction since 2018, with significant investor interest generated both on a portfolio and individual assets. Subregional shopping centres have kept trading this year with more than $775m in assets transacted year to date.

Mr Willis said that overall retail transaction volumes year to date were significantly down on the record more than $13bn last year. He estimated that total volumes are expected to reach $6bn this year.

“However, the subregional sector has attracted the greatest weight of capital. This demand for the sub-sector has been evidenced by the sheer transaction volumes totalling 14 subregional transacting totalling about $1.64bn and 5 per cent above the five year average.”

Mr Hatcher said the subregional investment market emerged post-Covid as the powerhouse area. “The land rich nature of these centres, diverse income profiles and dominance within their trade areas continue to attract a deep and diverse buyer pool,” he said.