Charter Hall have transferred a 20% stake in a wholesale fund of convenience retail centres from the Charter Hall balance sheet to the Charter Hall Retail REIT in a $56.2M transaction.
The portfolio is owned by the Charter Hall Retail Partnership No. 6 Trust (RP6), which was formed 5 years ago and comprises two Sydney metropolitan convenience shopping centres, being Pacific Square, Maroubra (valued at $189 million) and Bass Hill Plaza (valued at $92 million).
RP6 is owned 80% by Mercer, a global consultancy with US$282 billion in assets under delegated management, and 20% by Charter Hall Group, who is selling its interest to the retail REIT. Charter Hall Group received no fees for this transaction, but clearly remove two potentially risky assets off its balance sheet.
Longer term CQR have stated that it would like to enlarge the RP6 portfolio and increase its ownership towards 50%, subject to the approval of its wholesale partner. Mercer and CQR have an existing relationship in the jointly owned Bateau Bay Square, NSW.
Charter Hall Retail CEO, Greg Chubb said: “This is another portfolio enhancing acquisition which increases CQR’s weighting to metropolitan Sydney. Each centre benefits from being the dominant convenience centre in their respective catchments and present strong income growth prospects for the fund. Further, the acquisition is being funded by sale proceeds from recently announced divestments. RP6 is currently geared at 34% resulting in no material change to CQR’s gearing post divestments and acquisition.”
Pacific Square, Maroubra, located in Sydney’s eastern suburbs, is anchored by Coles and Aldi who have both recently expanded and refurbished their stores and perform significantly above industry benchmarks.
The centre has approx 60 specialty stores and recently underwent a minor refurbishment and tenancy remixing. RP6 acquired the Centre in 2015 for $137M on a 6.5% cap rate. Bass Hill Plaza, located in Sydney’s south western suburbs, is anchored by Woolworths and Aldi supermarkets and Kmart. During FY20 the centre will be refurbished including significant speciality tenancy remixing, upgrade of amenities and expansion of the Aldi supermarket.
RP6 also acquired Bass Hill Plaza in 2015 for approx $90M, indicating little growth in the value of the Centre over the past 4 years.
Moving Annual Turnover (MAT) for the two centres as at 30 June 2019 totals $313m of which over 60% of sales are generated from the supermarket anchors. All major tenants are providing rental growth through either turnover rent or fixed increases.