Elanor Investors Group (ENN) has sold a west Sydney shopping complex to SCA Property Group for $129.5 million after a renovation and reposition.
Auburn Central cost the vendor $68m in 2015; the refurbishment set it back $20m.
The asset has been held by Elanor Retail Property Fund (ERF) which following the divestment will realise a 24.5 per cent annual internal rate of return since that time.
SCA’s purchase price is 4.9pc over book value and reflects a six per cent implied fully let yield.
JLL’s Sam Hatcher and Nick Willis brokered the deal.
Settlement is expected in mid-December.
The suburb is about 16 kilometres from the city.
Forensic approach to repositioning: vendor
With 52 specialty stores and 15,424 sqm of lettable area, Auburn Central was developed in 2004 as part of a mixed-use project with 450 dwellings.
The Weighted Average Lease Expiry is 5.1 years.
ENN focused on the tenancy mix when repositioning it – specifically, replacing discretionary retailers with ones providing everyday goods and services which couldn’t be purchased online.
“This ability to act quickly on macro trends makes Elanor completely unique in the Australian market and shows how [it is] seeking to transform…retail real estate for the future eCommerce economy,” a statement said.
“This transaction is a significant milestone for ERF and will provide the fund with capital to acquire further…value-add investments in addition to providing the capacity to undertake capital management initiatives”.
The company added it applies a “forensic assessment” of the risks within an asset’s underlying cash flow before buying (story continues below).
It has a history of value-adding via tenant remixing and converting retail spaces.
At Auburn Central, where Woolworths is an anchor, ENN replaced a 7159 sqm Big W tenancy with Aldi and Tong Li supermarkets, improved the car park and set up travelators.
Gyms, fresh food, medical, childcare flourishing: landlord
“Discretionary retail offerings that are increasingly moving online, such as discount variety or fashion, are underperforming,” ENN’s head of Retail, Matt Healy, said upon announcing the Auburn Central sale.
“Offerings that require the physical presence of the consumer such as gyms, fresh food, medical, and childcare are flourishing as local residential populations grow,” the executive added.
“Our…repositioning and right-sizing strategies transform retail real estate assets”.
Two months ago, for a new syndicate, the group paid $60m for a shopping centre in Canberra’s Queanbeyan with plans to fit out a vacant Target tenancy as a medical and health hub.
In Sydney’s Fairfield ENN recently converted a Big W vacancy at Neeta City with a car park.
“With the relative outperformance recorded in supermarket spending during the pandemic, the sale of these types of assets accounted for 48pc of total transaction volumes in 3Q20,” Mr Hatcher said.
“The demand for these non-discretionary anchored assets that provide certainty of income will remain in high demand”.
Mr Willis added its recent on-market shopping centre campaigns “have been met with unprecedented levels capital” with underbidders holding some collective $2 billion.
“In addition, a key takeout is the increase in new entrant investors attracted to the relative returns in the retail sector at present”.