Charter Hall Retail REIT shifts focus to high-yielding sub-regional shopping centres

The decision by Charter Hall Retail REIT to buy three high-yield sub-regional NSW shopping centres marks a shift in its acquisition strategy. The purchase won't add value to its portfolio but will free up capital to develop other centres it holds, according Goldman Sachs senior REIT analyst Simon Wheatley.

Charter Hall Retail REIT successfully raised $100.7 million from institutional investors to fund its purchase of Dubbo Shopping Centre, Tamworth City Plaza, and the half share in Lake Macquarie Fair and Mount Hutton shopping centres the trust did not already own.

The sale price reflected an initial yield of 9.6%.

Scott Dundas, Charter Hall Retail fund manager, said the acquisitions were in line with its strategy of “acquiring supermarket anchored centres in the $20 million to $80 million asset value range that improve the quality of the REIT's already strong Australian property portfolio”.

But Wheatley does not believe the acquisitions are a value-add for the trust, with the risk that a trend of declining net tangible assets could continue.

Charter Hall Retail has a $1.72 billion retail property portfolio with a net tangible asset value of $3.38 per share compared with a current share price around $3.55.

He says the acquisition of the sub-regional shopping centres “further shifts the portfolio away from the grocery store-anchored style it has historically been known for”.

“The assets acquisition increase exposure to discount department stores and also have a higher proportion of rent being derived from specialty stores."

“Sub regional centres are anchored by at least one discount department store,“ Wheatley tells Property Observer.

“The point is – as you move further away from neighbourhood centres into sub-regional and regional assets, the proportion of income from anchor tenants becomes lower and the proportion of income from specialty stores gets higher.”

As an example, in the Dubbo Orana Mall, discount department store Big W occupies a much biggest share of the mall than Woolworths or Franklins.

“The acquisitions increase Charter Hall Retail’s exposure to NSW. However, we don't believe this has any meaningful benefit to the trust. It would seem that the benefit is merely increased diversification and unlocking the ability to fund some development works which were previously liquidity constrained,” says Wheatley.

Dubbo Shopping Centre was acquired from Centro for $30.5 million on a yield of 10.2%, while the Tamworth City Plaza was acquired from Australian Unity Investments for $35 million, on a yield of 10.1%

The acquisition of the remaining 50% stake in the Lake Macquarie Fair and Mount Hutton shopping centres for $35.2 million reflected a yield of 8.6%.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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