Lendlease unloads Caneland Central in $280m deal as retail opens up

The $280m shopping centre sale shows the great retail reset is gaining pace, with customers returning but values at a lower level.

Queensland-based property fund manager Sentinel Property Group has sealed a long-running deal to buy Caneland Central in Mackay from a Lendlease-run fund for about $280m.

The deal continues the Warren Ebert-led manager’s acquisition spree which has elevated his business as he has bought two of the country’s largest centres in just a year.

Sentinel splashed out almost $400m for Darwin’s Casuarina Square shopping centre in February and finalising the Caneland purchase confirms his status as a contrarian in the industry.

When he was out raising equity to back the purchase, Mr Ebert said the shopping centre was valued at $600m at its peak and although such a steep fall off is unlikely to be replicated across many centres it shows the dramatic rerating of retail assets.

Mr Ebert is successfully buying and raising fresh equity at a time when few others are even venturing into the larger end of the shopping centre market, with a series of campaigns to offload large retail property assets failing this year.

He has focused on buying regional malls in country centres which dominate their trade areas and have growing sales, rather than owning city malls which are under siege from e-commerce.

Caneland Central is a dominant 65,964sq m regional shopping centre anchored by Myer, Coles, Woolworths, Target, Big W, and mini-majors and speciality tenants. The centre is the largest shopping centre in the region servicing over 175,000 people.

Lendlease sells Caneland Central for $280m

When pitching the trust Mr Ebert said that there were opportunities to remix the centre and bring in new brands, both from larger cities and from offshore.

His maverick approach is working so far and metropolitan-based managers are continuing to unload unwanted assets, while smaller funds houses are buying up in cities like Wollongong.

Sentinel is also buying on attractive metrics with the latest deal struck on a yield of about 7 per cent and, with leverage, the syndicate holding centre could perform at an even stronger level.

Lendlease confirmed that the Australian Prime Property Fund Retail had settled the deal after owning and running the centre since 2001.

“Despite recent market volatility, the outlook for Australian retail remains positive, with sales remaining robust post the pandemic. Lendlease is changing the fund so it focuses more on mixed-use opportunities to cater to future lifestyle, technology and shopping needs,” APPF Retail fund manager Anne MacSporran said.

Nick Willis and Sam Hatcher from JLL managed the sale and are bullish about what it means for the market as it took retail investment to $5.8bn for the year, indicating retail sales volumes on track to be in line with annual average

Notably, the sale was the only transaction for a 100 per cent stake in a regional shopping centre to actually trade this year.

Mr Hatcher said such opportunities seldom come to market, adding that in the past decade, only three of the 38 regional shopping centre assets sold were for 100 per cent interests with management rights.

Mr Willis said the transaction was a “positive endorsement” for Australia’s retail investment market. “It represents the second shopping centre trade above $250m in 2022, excluding large format retail, and the largest shopping centre to have been formally marketed and sold this year,” he said.

Mr Willis said the value proposition for major retail assets was compelling despite higher debt costs, because initial yields are attractive, and valuations were reset in 2020.

The Caneland Central deal was originally agreed in April, prior to the RBA’s monetary policy tightening, and was concluded in November following a 275 basis point increase to the cash rate.

Mr Hatcher said that in terms of asset performance, the operating fundamentals for retail investment were strengthening. Despite the value drop, the moving annual turnover in Caneland Central jumped by 23 per cent in five years.

“The sale of Caneland Central brings retail investment to $5.8bn in 2022, suggesting 2022 will be within the range of a typical year of $6-8bn per annum,” he said.

Nimble fund managers are making the running while big players shy away from the market.

“Syndicates are still the lead buyers for major retail assets in this environment and continue to be an important source of liquidity in the retail sector,” said Mr Hatcher. “Early-movers will have a broad cross section of opportunities as we move into the next phase of the investment cycle, particularly those that can largely equity fund transactions.”