Scentre turns funds manager to lock in Adelaide’s Tea Tree Plaza

The owner of the local Westfield and investment bank Barrenjoey have launched an unlisted trust that will own a half interest in Adelaide’s second largest shopping mall.

Tea Tree Plaza is Adelaide’s second largest shopping mall

The owner of the local Westfield empire, Scentre Group, has made a dramatic entry into funds management with the aid of investment bank Barrenjoey, with the pair launching an unlisted trust that will own a half interest in Adelaide’s second largest mall.

They have teamed up to launch a fund that will take a 50 per cent stake in Westfield Tea Tree Plaza, effectively thwarting a transaction that would have resulted in acquisitive funds house IP Generation purchasing the stake in the mall.

The move would see them pay about $298m for the interest in the property and is a big departure for Scentre, which normally owns some of its malls with global institutions such as Singapore’s GIC.

It had not previously had a funds business directed at wealthy investors, but already manages the listed Carindale Property Trust so has systems in place. The interest in the Adelaide complex was put on the block by a Dexus-run fund last year, and IP Generation had proposed paying about $308m. But Scentre held rights to both acquire part of the property or nominate a party of its choosing to take on the interest in the complex.

The parties and the agent who brokered the IP Generation deal, CBRE’s Simon Rooney, have not commented.

It also marks the first big private real estate play by high-profile investment bank Barrenjoey, which is looking to shift into private capital management by opportunistically investing.

The Adelaide play will also leave Scentre in full control of the asset and signals that it will be able to choose its partners on other assets that come up for sale. Other malls run under the Westfield moniker are also being offered by co-owners in Perth, Adelaide and New Zealand.

Scentre’s play shows that it believes in the value of its mall properties and also its willingness to back its redevelopments, as the Adelaide property was recently overhauled.

The deal will also leave it as co-owner of the mall and keep it in place as asset manager where it has a track record of more than 40 years.

The Scentre and Barrenjoey fund is giving wealthy people the chance to invest in a 50 per cent equity interest in both Tea Tree Plaza and the adjoining Tea Tree Plus.

The transaction still marks a big reset at the top end of the mall market that could have an impact across the wider industry.  The pair’s documents said the purchase would show a 7.9 per cent implied market capitalisation rate, compared to the last book value at a capitalisation rate of 6.25 per cent and a peak valuation at capitalisation rate of 5.38 per cent.

They said the deal shows strong alignment, with Scentre as co-owner and joint investment manager and Barrenjoey staff and investment team personally investing in the trust. The new fund is seeking to raise $143.4m of investor equity.

Before this sale, the retail property market had been marked out by fund managers snapping up once-in-a-cycle bargains. But this also shows that big institutions are seeing the value on offer. The mall is 99 per cent-occupied and anchored by Woolworths, Coles and Aldi.