Scentre teams with Barrenjoey to buy stake in Adelaide’s Tea Tree Plaza

The sale of a stake in Adelaide’s second largest shopping centre signals that the market for big retail malls is again on the move.

Scentre Group has partnered with Barrenjoey Private Capital to set up a fund to purchase a 50 per cent share in Westfield Tea Tree Plaza.

The owner of the local Westfield empire, Scentre Group, has teamed up with investment bank Barrenjoey to buy a half stake in Adelaide’s Westfield Tea Tree Plaza and a small adjoining centre for about $308m.

The deal marks a shift by the large mall owner, which has traditionally worked with big institutions to buy malls. By joining with the bank it is now tapping private capital that wants to directly own shopping centres, opening up a new pool of investors.

The transaction also shows that large institutions that own malls are seeing value in them, following a fall in values triggered by higher interest rates and Covid-19.

Scentre and Barrenjoey made their move on the stake in the mall in April by launching an unlisted trust to own a half interest in the property, Adelaide’s second largest mall.

Their surprise move effectively thwarted a transaction that would have resulted in acquisitive funds house IP Generation purchasing the stake in the mall from the Dexus-managed fund selling it.

The move not only signals Scentre’s entry into funds but this is expected to continue as more centres come up given the offer was oversubscribed. The deal also shows the large pricing recalibration of regional shopping centre assets since the boom times before the pandemic.

Scentre Group chief executive Elliott Rusanow said the group had successfully partnered with Barrenjoey Private Capital to establish a fund to purchase a 50 per cent share in Westfield Tea Tree Plaza and the adjoining Tea Tree Plus.

“The opportunity was oversubscribed reflecting the strong demand from private investors to invest directly into one of our Westfield destinations,” he said. “The group has retained its 50 per cent interest and will continue to drive the strong operating performance of the centre.”

A Dexus spokesman confirmed the sale of the centre as part of the fund’s proactive capital management strategy. The unlisted vehicle has been selling down assets to meet redemptions.

CBRE agent Simon Rooney negotiated the deal for the Dexus-managed fund as institutional and private capital flows back into the regional shopping centre market.

The acquisition comes just weeks after the announcement of Vicinity Centre’s agreement with the Future Fund to acquire its 50 per cent interest in Lakeside Joondalup, Western Australia, with additional major retail transactions expected to be completed in coming months.

Westfield Tea Tree Plaza is Adelaide’s second largest shopping centre.

The Tea Tree Plaza deal is South Australia’s largest regional shopping centre transaction since November 2019, when Paragon REIT and MA Financial took out a 50 per cent stake in Westfield Marion for $670m from the Lendlease-run Australian Prime Property Fund Retail.

“The opportunity to acquire a 50 per cent stake in a dominant and strong performing regional shopping centre in Adelaide’s affluent north-eastern suburbs garnered both domestic and offshore investor interest. This interest was underpinned by the centre’s genuine value-add potential, robust investment fundamentals,” the agent said.

“Active, well-capitalised investors are opportunistically acquiring the best quality fortress malls, which are historically rarely traded and offer exceptional investment fundamentals.”

More deals are in play as offshore and domestic institutional capital returns to the sector, joining the likes of Fawkner and IP Generation and Haben that had dominated buying.

“This window of opportunity is beginning to close, with more investors looking to come back into the retail sector as interest rate volatility stabilises given the compelling returns on offer,” Mr Rooney said.

Tea Tree Plaza has a total gross lettable area of 101,052sq m and is anchored by Myer, Big W, Kmart, Target and Harris Scarfe, alongside a triple supermarket offering in Coles, Woolworths and Aldi, nine mini-majors and approximately 201 specialty stores.

The centre also includes a dining and entertainment precinct, offering 10 restaurants and a Hoyts cinema complex, forming part of the most recent redevelopment of the centre in 2018. An additional $40m in upgrade works are set to be completed in the first half of this year.

The centre is on a 22.4ha site, allowing for significant future expansion potential, to cater for a growing catchment over the coming years. It has 10.8 million customers annually and caters to a significant trade area population of over 440,253 residents, which is forecast to reach 487,795 residents by 2041.