Despite global uncertainty, there has been a strong interest in Australian retail assets over the past year. Major retail investment transactions are on the rise with significant activity being driven by capital partnering, according to Herbert Smith Freehills partner Michael Back.
“A number of the major retail transactions involved innovative capital partnerships whereby shopping centre owners enter into a joint venture arrangement with parties to sell part of their interest in a portfolio to raise funds to reduce gearing and fund their retail development pipelines,” said Back. “A number of these capital partnering deals have involved Federation Centres, with these deals accounting for around one quarter of the total retail transactions (by value) in the past year.”
Other recent deals following this trend include Industry Super Property Trust's purchase of a major stake in the A$532 million Coles-owned shopping centre portfolio, which will see the A$8 billion ISPT acquire a 75 per cent stake in a portfolio of 19 shopping centres owned by Coles. Shopping centre giant Westfield Group and AMP Capital also entered a partnership agreement to split seven Australian shopping centres in a transaction worth A$5.8 billion
“This is a trend that will continue as offshore investors continue to target the Australian retail property market without necessarily having the desire to manage the assets, and as more groups seek financial backing for their retail development projects. We are already seeing a number of similar capital partnering transactions in the pipeline and expect to see more over the coming year.”
“Retail property assets offer investors a low-risk opportunity and have been producing better yields than the Australian bond market. This makes these assets an attractive target and we are seeing increased interest from offshore pension and sovereign wealth funds looking to increase their exposure to Australian property,” said Back.
Over the past year, Herbert Smith Freehills has advised Federation Centres on A$1.7 billion worth of capital partnering deals and over A$2.3 billion worth of retail transactions. Recent highlights for Herbert Smith Freehills include advising Federation Centres on the sale of: a 50% interest in six shopping centres throughout Australia to trusts managed by the Challenger Group for a consideration of A$602 million; a half interest in three regional shopping centres to the Perron Group for $690 million; and a half interest in five shopping centres to ISPT for A$370 million.
“Each of these capital partnership deals involved complex negotiations around co-ownership documents and development management and property management agreements which enabled Federation Centres to continue to manage the centres now owned in joint venture and to continue to receive fees for those services,” said Back.
