Sentinel breaks the drought with $280m Caneland buy

December 8, 2022

SENTINEL Property Group has broken the shopping centres drought with the acquisition of Caneland Central Shopping Centre in Mackay for $280 million, a figure below seller Lendlease’s hopes of more than $300 million when it offered the mall to the market early in the year, in what is shaping up to be one of the quietest quarters in recent years.

Caneland Central had been held within Lendlease’s Australian Prime Property Fund (APPF) Retail since 2001, and was put to the market in February following a string of bumper retail asset transactions, including Sentinel’s $418 million acquisition of Darwin’s Casuarina Square from GPT Group, but retail transactions have since dried up in 2022.

Just under $300 million worth of retail property was sold in the three months to November, a 79% fall from the $1.4 billion-plus that changed hands in the same period last year, while capitalisation rates have climbed to nearly 6%. The Caneland Central purchase price resulted in a passing yield of 7.7%.

In the latest Australian Property Journal Talking Property podcast, Benjamin Martin-Henry, Head of Real Estate Research, Pacific with Real Capital Analytics (MSCI), noted that retail investment volumes fell 41% in Q3, and for the first three quarters of the year were down 18%. The picture for yields was mixed. Yields for city centre, large format, and big box retail assets compressed; but at a slower pace than the prior quarter.

Anchor tenants at the 65,964 sqm mall include Big W, Coles, Target and Woolworths, while it is the only shopping centre with a Myer within 320 kilometres. The weighted average lease expiry on the major tenants is 5.7 years.

With 202 tenants, the asset is the largest of its type in the region, servicing a catchment of more than 175,000 people. The centre’s moving annual turnover is about $393 million, representing growth of 22.5% since 2017.

“Like Casuarina Square, Caneland Central completely dominates its market,” Sentinel CEO Warren Ebert said.

“Every man, woman and child in Mackay comes to Caneland four times a month. You could never duplicate this centre and you also cannot find another 14-hectare site like this in the city, let alone even close to the city.”

Caneland Central first opened in 1979 and has since undergone significant redevelopments, including a $230 million expansion in 2011 that introduced a new food court and dining precinct, as well as the Myer store.

Sentinel plans to immediately carry out improvements to the centre including a renewable energy upgrade through the installation of a roof-mounted solar system, which the Group has also provided at its DFO retail complex in Cairns. A new moving walkway is also being installed in the centre.

It will be the first asset held in the Sentinel Caneland Mackay Investment Trust. Sentinel undertook a capital raising for the purchase in late winter.

Anne MacSporran, fund manager, APPF Retail, said,“The centre has been a strong performer for APPF Retail due to its mix of retail, lifestyle and dining and core position at the heart of Mackay’s local community.

“Despite recent market volatility, the outlook for Australian retail remains positive, with sales remaining robust post the pandemic.”

JLL’s Nick Willis and Sam Hatcher handled the sale.

Hatcher said opportunities to acquire a 100% stake in major regional shopping centres seldom come to market.

“Caneland Central is the only 100% interest Regional Shopping Centre to have sold in 2022, and in the past 10 years, only three of the 38 Regional Shopping Centre assets to have sold in Australia have been for a 100% interest with management rights.”

Willis said this transaction is a positive endorsement for Australia’s retail investment market.

“It represents the second shopping centre trade above $250m in 2022, (excluding large format retail); and the largest shopping centre to have been formally marketed and sold this year.

“The value proposition for major retail assets is compelling despite higher debt costs, because initial yields are attractive, and valuations were reset in 2020. In this instance, the sale of Caneland Central was originally agreed in April 2022, prior to the RBA’s monetary policy tightening, and was concluded in November 2022 following a 275-basis point increase to the cash rate,” said Willis.

Australian Property Journal | Nelson Yap

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