Elanors Warrawong Plaza Wholesale Offer

Elanor Investors Group recent announcement of its intention to acquire Warrawong Plaza has enabled the Group to establish a new wholesale fund for the asset.

Elanor is seeking to raise $82.2m of equity for the single asset fund with a target distribution yield of 7% in year 1 and a total return of circa 12% over a 5 year investment period.

Warrawong Plaza is a two-level sub regional shopping centre located on the corner of King and Cowper Street in Warrawong NSW, 8km south of the Wollongong CBD. Originally constructed in circa 1960, the Centre has undergone several refurbishments, with the most capital-intensive periods between 2016 – 2019, when over $40M was spent in beginning to reposition the Centre towards non-discretionary and destination retailing.

Situated on a 7-hectare site, the Property comprises 43,372 sqm of GLA with 1,555 car parking spaces spread across the basement as well as levels 1 and 2.

The Centre is anchored by two supermarkets (Coles and Aldi), two discount department stores (Big W and Target), Hoyts Cinemas, 9 Mini Majors along with 66 specialty tenants including 3 pad sites. Together, the five majors represent 39.4% of gross income, while another 37% is sourced from non-discretionary service-based tenants.

Elanor intends to acquire the asset and reposition the Centre to remove the Target DDS and introduce a new Woolworths Supermarket. The repositioning is expected to provide additional rental income and provide opportunity for cap rate compression.

Elanor has secured a senior debt facility $94.6m debt facility to assist in the acquisition and repositioning strategy of the asset. The an all-in cost of the debt is ~2.75% p.a., with an initial Loan to Value (LVR) ratio of 50% below the LVR covenant of 55%.

Elanor has forecast distributions of 7.0% in years 1 and 2, increasing to 9.2% in year 3 as a result of additional income from the repositioning strategy, with a forecast 5-year average distribution of 8.50%. Distributions are paid on a quarterly basis.

Elanor is targeting an IRR of 12.2% p.a. over a Five years investment period based on its assumptions for earnings growth.

Fund Details

Investment Strategy

The Fund aims to undertake an extensive repositioning of the Property to unlock underlying value for investors. The strategy involves a remixing of tenancies with a weighting towards non-discretionary users, including replacing the underperforming Target DDS with a full line Woolworths supermarket with e-commerce and fulfillment centre capabilities, and expanding the upper levels medical centre into a health services precinct by introducing new healthcare tenants and a childcare facility.

A new lease has been already been negotiated with Woolworths for a new 3,800 sqm Woolworths supermarket making Warrawong Plaza the only triple supermarket, single DDS centre within the trade area. The lease will also include a 2,000 sqm e-commerce fulfilment facility that will be Woolworths and Big W’s only combined E-Commerce ‘Dark Store’ and ‘Direct to Boot’ offering in the Wollongong region.

The Manager also intends to extend the lease of the strong performing Big W for an additional five-year term including a new store fit out.

The reposition strategy is expected to produce an additional $3.6M of net income to the Property, with a possibility of cap rate compression following the repositioning strategy

Fund Fees

Elanor are entitled to receive fees in consideration for establishment and management of the Fund including;

• A 1.0% equity raising fee
• An Arrangement & Acquisition Fee of 2.00% of the Acquisition Price
• Management Fees based on 1.0% of the Gross Asset Value (GAV) of the Fund.
• Development Management Fees of 8% of the Capital Expenditure amount
• Leasing Fees of 15% of the year 1 gross rent
• A Performance Fee of 25% of the Fund’s performance above an IRR of 10%.

The above fees generally align with market practice

Recommendation

The Fund is recommended for further consideration by investors seeking an above average distribution yield with FY22 at 7.0% p.a and further opportunity for capital growth from cap rate compression.

Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.