The Elanor Retail Property Fund has exchanged contracts for the sale of the Auburn Central asset to SCA Property Group for $129.5 million.
Auburn Central has been transformed into a triple-supermarket anchored, metropolitan neighbourhood shopping centre with the introduction of ALDI and Tong Li supermarkets to complement the existing Woolworths. The repositioning project generated a 12% income yield on the total development cost of $20 million.
Elanor acquired the Centre off Holdmark Group for $68m in 2015 just as Anchor tenant Big W announced plans to close its store in the Centre. Elanor’s investment strategy was predicated on the Big W exit and the re-positioning the Centre to a triple Supermarket based Centre, securing Aldi and an Asian Grocer to the new format.
In ERF’s 2020 accounts, the Centre was held at $108m, based on internal valuations and a cap rate of 6.0%. That valuation was questionable with the Group now citing an increased book value of $123.5m and a sale price 4.9% higher again.
SCA Property Group indicated that the acquisition was based on an implied fully let yield of 6.0%.
The transaction was completed via an off-market process by JLL’s Sam Hatcher and Nick Wills following receipt of several unsolicited offers for the property.
“With the relative outperformance recorded in supermarket spending during the pandemic, the sale of these types of assets accounted for 48% of total transaction volumes in 3Q20. The demand for these non-discretionary anchored assets that provide certainty of income will remain in high demand,” said Mr Hatcher.
Earlier this year, SCA Group also acquired the Bakewell Shopping Centre in NT for $33m and Primewest acquired Pemulwuy Marketplace and West Ryde Marketplace for $91.5m.
JLL’s Nick Willis said “Our recent on market shopping centre campaigns have been met with unprecedented levels capital, with over to $2billion of underbidder investor demand. In addition, a key takeout is the increase in new entrant investors attracted to the relative returns in the retail sector at present”
For Elanor Retail Fund, the sale of the asset was the final part of the investment strategy for the Fund.
Fund Manager, Michael Baliva, said “Since ERF acquired the property in 2016, we have been focused on executing our strategy to unlock value through actively repositioning the asset. This has resulted in Auburn Central being converted from a large sub-regional asset to a triple-supermarket neighbourhood centre.”
“The sale of Auburn Central generates a 24.5% IRR to ERF investors and highlights our capability in unlocking the value of our assets through actively repositioning the retail mix to nondiscretionary focused offerings.”
Proceeds from the sale of Auburn Central will be used to undertake capital management initiatives to further enhance value for securityholders. Specifically, ERF intends to:
Repay $94.1 million in debt which will see Fund gearing fall to 17.3%
Reinstate Fund distributions which were suspended due to economic uncertainty created by COVID-19
Commence an on-market buyback of up to 10% of ERF’s issued securities