Elanor Clifford Gardens Fund

27 April 2021

Elanor Investors has announced the establishment of the Elanor Clifford Gardens Fund seeking to raise $90m of equity to support their acquisition of the Clifford Gardens Shopping Centre.

The Manager is seeking to raise $90.3M through the issuance of 90.3M units at an issue price of $1.00 per unit. The funds will be used on conjunction with debt, to acquire the Property for $145.0M plus costs. The Manager has secured a cornerstone investor which will acquire 49.9% of the units in the Fund with the remaining 50.1%, made available to Wholesale or Sophisticated investors.

The Manager plans to undertake an extensive repositioning of the Property to unlock the underlying value for investors. Occupancy levels are currently 96.2% and the Manager is looking to restore this to historical levels of 99%+. The repositioning strategy involves a remixing of tenancies with a weighting towards non-discretionary users, including an expanded health offering, the establishment of two new fast food outlets on under-utilised areas in the car park as well as the divestment of the peripheral, non-core car park.

Elanor are forecasting an Equity IRR over a 5 year period of 14.6% p.a. based on a 6.75% terminal capitalisation rate and a successful repositioning strategy. The Fund is forecast to provide a 8% distribution in year 1 rising to 10% following the repositioning strategy.

The Fund is a stapled entity which consists of a property trust (the Property Clifford Gardens Equity Trust) and a development trust (the Clifford Gardens Development Trust). The structure allows the development trust to undertake certain development work and divestment in a separate tax effective structure.

The Manager has obtained indicative terms for a $77.5M debt facility from a major global bank to facilitate the purchase of the Property. Initially the Fund will draw down $72.5M to fund the acquisition, with an estimated all-in-cost of approximately 2.40% p.a.

Fund Details

Responsible EntityElanor Funds Management Limited
Fund ManagerElanor Investors
Fund Size Target$90.3m
Fund OpenApril 2021
Fund Raising CloseMay 2021
Fund Term5 Years
Target Return12%
Investor TypeWholesale
Target AssetsClifford Gardens Shopping Centre

Further Information

Whilst we like the thematic of investing in non-discretionary retail centres, Clifford Gardens is a larger sub regional Centre located in a Regional area, and is therefore more exposed to the vagaries of discretionary retail. The Centre has 3 major stores and 88 specialty stores.

Whilst Big W is performing well and has over 8 year left on the lease, there remain a question mark over the longevity of the business. The tenant has a high occupancy cost of 7.1%, occupies 27% of the NLA and 14.3% of gross income. Upon the intended exit of the Centre in 5 years time, the Big W lease if not dealt with prior to will leave a question mark hanging for any intended purchaser. We therefore expect Elanor will need to consider how best to re-use this tenancy.

Elanor are an established Investment Manager and have a proven capability to reconfigure and add value to difficult retail assets.

The strategy of replacing discretionary tenants with non-discretionary tenants including health related services is sound and will help to address the vacancy and potential risks to income that will otherwise persist for assets like this. The Centre has a significant exposure to Fashion, Banks and other Personal services which are all under threat of a move to an online services. With 88 specialty stores, the task of re-mixing the Centre may be difficult.

Core Property Group have given the fund a Recommended rating (see review below).

According to the Core Property Group report, Elanor expects to generate an additional $600,000 in gross income from the re-positioning strategy and $3.0M in proceeds from the sale of a surplus car park.

The NTA of the Fund after acquisition (0.865cpu) represents a significant discount to the issue price. This suggests there are significant upfront fees and costs, including stamp duty, which are being absorbed up front and recouped from the capital gain over the 8 year period.

In our view, the fees in the Fund are high which is typical of offers in the market. Core Property Research describe the all in cost of fees equal to 6.9% of the total cash flow. By comparison Chauvel Capital (a related entity of the author) has established a Neighbourhood Convenience Fund for an institutional client with an all in cost of fees of 4.1%.

Our view of the key risks are;

  • Failure to generate a viable strategy to replace the income from Big W
  • Failure to successfully re-mix the Centre with sufficient non-discretionary tenants

We feel that there are other funds available that would provide similar returns but with less risk.

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.