Go to Adelaide for 6pc yield on a shopping mall
Brickworks Marketplace shopping centre. Smaller malls focused on non-discretionary are winning interest from investors.

Go to Adelaide for 6pc yield on a shopping mall

Busy property fund manager FRP Capital hopes to hand investors a dividend yield above 6 per cent on an $85 million shopping mall in Adelaide it is acquiring from Charter Hall Retail REIT and Telstra Super.

The forecast return of 6.07 per cent could push even higher as the Adelaide investment platform plans to collect annual rent increases from specialty tenants at the Brickworks Marketplace shopping centre.

The mooted transaction and the raising for the new syndicate come amid increased interest in individual retail assets and smaller malls focused on non-discretionary shopping, as surging inflation – now expected to peak at 8 per cent – and rising interest rates challenge investments across asset classes.

Leasing arrangements with supermarkets typically involve an element of turnover rent calculated on the tenant’s retail sales and help absorb the impact of inflation.

While market volatility and economic uncertainty have stripped around 30 per cent from ASX-listed property stocks so far this year, unlisted property assets are yet to feel the heat. Australian unlisted property funds delivered 17.7 per cent for the 12 months to the end of June, according to MSCI.

Anchored by Woolworths, the 17,300 square-metre subregional mall in Adelaide’s Torrensville was completed in 2015 and sold by the supermarket giant to Charter Hall. The average lease expiry is nine years with major tenants including Big W, Dan Murphy’s and Direct Chemist Outlet.

Telstra Super divestments

A capital raising offer published by the FRP Capital notes the mall is being acquired in line with an independent valuation of $85 million. The raising itself is targeting $39 million, with 55 per cent gearing.

The Charter Hall-run trust holds its half stake on a 5.75 per cent yield.

The acquisition of the Adelaide mall – it was quietly brokered off-market by JLL – adds to a growing portfolio of retail assets managed by FRP Capital. Last year the fund manager acquired another Woolworths-anchored centre, Yanchep Central in Perth’s northern suburbs, for $41 million on an initial yield of 6.64 per cent.

The exit at Brickworks is the second divestment in a little over a month for co-owner Telstra Super, which sold its half stake in metropolitan Sydney’s Carlingford Court shopping centre to Hong Kong-based property investor JY Group for $120.5 million in September.

Meanwhile, a $270 million portfolio of three east coast convenience retail centres has hit the market with its owner, an ISPT-run fund, hoping to tap investor interest in the asset class.

The three malls – Market Central Lutwyche in Brisbane, Dee Why Grand in Sydney, and Camberwell Place in Melbourne – generate more than 80 per cent of their total income from non-discretionary shopping.

All three sit in the $2.3 billion ISPT Retail Australia Property Trust, an unlisted property fund that delivered an eye-watering 17.5 per cent annual return over the 2022 financial year to its super fund investors.

That result was delivered courtesy of a 12.4 per cent capital return combined with a 5.6 per cent income return, in another telling example of the disconnect between unlisted and listed property.

The mall portfolio is being brokered by JLL and Stonebridge, to be sold individually or in one line. Woolworths, Coles and Aldi are the anchor tenants in the portfolio, where the average lease expiry is five years. Combined, the three malls take in more than 40,000 sq m of space.

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