HomeCo Daily Needs REIT has secured a 100% interest in Southlands Boulevarde for $92.5m and HomeCo Capital will hold Menai Marketplace, worth $150m, as a seed asst in a new Fund.
The deals were part of the Lendlease Sub Regional Portfolio put to market in July 2022. The sale of the third asset in the portfolio, Settlement City Port Macquarie, is yet to be announced.
For the Daily Needs REIT, the acquisition of Southlands Boulevarde is consistent with HDN’s strategy to acquire high quality convenience focused assets in metropolitan locations with future development upside. The centre is highly productive, generating approximately $139m of turnover p.a. with approximately 80% of income weighted to daily needs tenants. The opening of Aldi in 1H 2023 will complement the existing Woolworths and Coles offering, making this a rare triple supermarket anchored daily needs asset. The supermarkets are complimented by a Hoyts Cinema complex and approximately 67 specialty stores providing a total NLA of 22,401sqm.
The Daily Needs REIT was unable to acquire Menai Marketplace as its mandate prevents exposure to discount department stores and department stores. As a result, HMC Capital have launched a new unlisted institutional fund (LML Fund) which will target core plus returns (10%+ IRR) from repositioning well-located and strategic real estate into daily needs retailer focused infrastructure. The Fund, which will target transition assets which are outside of HDN’s investment mandate, will be seeded with the proposed acquisition of Menai Marketplace.
HMC Capital is targeting to raise $500m of equity for the LML Fund by the end of the 1H 2023, which will provide the LML Fund with up to $1.0bn of acquisition funding capacity. To date, HMC have early equity commitments of $92m (by $50m by HDN and $42m by Woolworths), however Woolworths’ commitment is required to be substituted (and repaid) by new LML Fund investors by no later than 24 months from financial close of the LML Fund.
It appears unusual for HDN to take a position in LML Fund but have a mandate which prevented it from taking a direct interest in assets like Menai Marketplace. HomeCo responded to our query on this by confirming that HDN’s investment in the LML Fund will provide it with a right of first offer for properties from the LML Fund which have been successfully transitioned to fit with HDN’s definition of core daily needs assets, but it would enable HDN to exclude itself from exposures to other assets in the LML Fund.
Menai Marketplace is a highly productive asset located 30km from the Sydney CBD, within the Sutherland Shire and is anchored by a Woolworths supermarket and Big W discount department store. The Centre also contains 61 specialty tenancies across 16,887sqm of NLA on a 5.2ha site. The asset supports a large and established trade area with attractive fundamentals including average household income which is 20% above the national average. The transaction was completed at a fully leased yield of 5.2%.
The strategic location, tenancy mix, short WALE and low site coverage of 32% make the centre well suited to the LML Fund strategy which is targeting core plus returns from repositioning well-located and strategic real estate into daily needs retailer focused infrastructure. Presumably HomeCo will likely work with Woolworths to facilitate the removal of Big W from the Centre and the transition of it to a Daily Needs REIT asset which on completion may be taken up by HDN.
HDN Chair Simon Shakesheff, said: “We are excited to partner with HMC Capital on this complementary growth initiative to build a market leading omni-channel distribution platform. This relatively small capital investment has the potential to create a significant growth pipeline for HDN in the future.”
For HDN, the proposed acquisition of Southlands Boulevarde and strategic investment in the Last Mile Logistics fund are forecast to be 1.9% accretive to HDN’s FY23 FFO5 per unit in isolation, however this is expected to be offset by settlement timing, proposed asset sales and higher floating debt costs. HDN reaffirmed FFO guidance includes the following assumptions:
- Average BBSY of 2.9% (previously 2.7%) over the financial year
- Financial close for LML Fund in 3Q FY23
HDN is actively exploring several potential large format retail divestment opportunities to neutralise the gearing impact of the Southlands Boulevarde acquisition and the LML Fund investment
JLL’s Nick Willis and Sam Hatcher together with CBRE’s Simon Rooney and James Douglas exclusively sold the portfolio of retail assets on behalf of Lendlease SRF via an international Expressions-Of-Interest campaign.
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