Investors could net over 7pc returns from shopping mall deals

Perth-based Greenpool Capital is set to buy Vicinity Centres’ Dianella Plaza – a mall 8 kilometres north of the Perth CBD with a book value of $72 million – for about $76 million.

Greenpool expects to provide an average distribution yield of 7.8 per cent from the Dianella Plaza acquisition, with the asset to go into its Value-Add No. 2 Fund. The centre’s strong anchor tenants in Coles and Woolworths, and WA’s strong population and wages growth, were reasons for the returns, according to pitch marketing documents.

The acquisition would include surplus land next to the shopping centre, where Greenpool plans to build about 150 apartments and a tavern.

Busy fund manager Fawkner Properties, meanwhile, acquired Lendlease’s sub-regional centre Settlement City for $102.4 million last week, on a yield of 7.77 per cent.

Settlement City, the largest shopping centre in Port Macquarie, is expected to provide a distribution yields of 7 per cent to 7.25 per cent in 2024 and will be placed in the Fawkner Essential Services Trust No. 23 fund.

Investor demand for Fawkner’s Settlement City play has been strong with the Fawkner Essential Services Trust No. 23 fund being oversubscribed by around 200 per cent, sources told The Australian Financial Review.

The Melbourne-based syndicator is on track to close out $1.3 billion in deals since 2021, making it the most active retail buyer in the Australian market.

Lendlease had been seeking to divest Settlement City from its unlisted Sub-Regional Retail Fund since July last year. The deal follows the fund’s divestment of Menai Marketplace and Southlands Boulevarde at the end of 2022, which were both put on the market at the same time as Settlement City.

Lendlease bought Settlement City as part of its acquisition of the $1.4 billion ING Retail Property Fund in late 2009. At the time, the asset was valued at $86 million.

The sale was handled by CBRE’s Simon Rooney and James Douglas and JLL’s Nick Willis and Sam Hatcher.

Deal flow still slow

While retail transactions have picked up in the weeks leading up to Christmas, deal volumes are still down compared to last year and before the COVID-19 pandemic.

There were nine retail transactions in November, three more than the same period last year, according to research firm PAR Group.

But the number of retail transactions in 2023 so far was just 84, which paled in comparison to 184 deals and 134 deals recorded for 2021 and 2022, respectively, it said.

Mr Quillfeldt said retail transaction volumes remained low, but shopping centres were experiencing more deal activity than other types of commercial property due to the higher distribution yields they can offer.

“At those 7 per cent to 8 per cent yields, they’re very hard if not impossible to get in office and industrial,” he said.

“If you’re borrowing at 6.3 per cent, there’s no point buying something at 4 or 5 per cent because you’re just paying the bank and not covering it through your rental income.”