Dec 05 2018Add to Favorites
We really love retail property at the moment at MP Funds Management because we see opportunity in the disruption. Australia’s population is growing, our living is getting denser and whilst the advent of online shopping is creating change in the sector, human behaviour causes us to gravitate towards food and entertainment. Whilst some of the retail tenants may be outmoded or a centre underperforming as a result of this evolution, it’s fair to say that well-located and underperforming CBD- located centres, which have a strong demographical catchment area can be turned around with some TLC and well thought out repositioning.
Successful retailers understand this fundamental need to improve engagement and are evolving at pace. There is a requirement for creativity and capex spend, and as a result a lot of the larger listed retail property trusts, like Vicinity, are discounting and selling off parts of their portfolio, which is creating an opportunity to acquire well-priced assets with repositioning value.
The perfect example.
The perfect example of a successful retail real estate investment would be the acquisition of Birkin Head Point by the late Frank Woolf’s Abacus group, in 50/50 joint venture partnership with Swazi billionaire-backed Kirsh Group. The JV acquired the asset, which had a gross lettable area of 32,483sqm, for $175 million in 2010, which was reflective of a rate of $5,400 per sqm and an 8% initial yield.
The vendor had commenced a partial $50m refurbishment of the waterfront, open-air centre and Abacus and Kirsh group completed the refurbish, redevelop and upgrade the centre and marina. Improvements were made to the convenience-based tenancy offering while remixing the wider outlet tenancy offering to cater for high-end brands. The Moving Annual Turn Over (MAT) was improved during the period from $125m to $180m, overall improving the asset to institutional grade.
Midway through 2014 ASX- listed Mirvac acquired Birkenhead point for $310m, producing a 78% capital uplift and an equity internal rate of return (IRR) of 24%.
Mirvac also acquired Broadway Shopping Centre just before the global financial crisis from Walker, with 154 retailers across a gross lettable area of 52,724sqm, a trade population area of 351,930, annual customer visits of 15.1 million and an annual MAT of $610.4 million. Broadway is one of the better performing centres in Sydney, it performs better (measured by MAT) than Westfield in the CBD as well as Westfield Bondi Junction.
Simon Property Group leading the retail evolution.
Updating their tagline to a ‘Dining and Entertainment near you’, global retail property holder and the largest NYSE listed REIT and shopping centre operator in America, Simon Property Group’s share price sits at $187.27 USD. Simon reported retailer sales per square foot for the trailing 12-months ended September 30, 2018, of $650, an increase of 4.5% and the highest sales result, according to Simon CEO David Simon, in four years.
The group owns c. 22.4m sqm of retail space and produced a consolidated revenue of $5.4b in NY 2017. Since October, JPMorgan Chase & Co. Bank of America and several other investment banks have upgraded their rating on Simon to a “buy” with an average target price per share of $195.42.
MP Funds Management
MP Funds Management has funded over $1.1b of real estate across c. 21 transactions producing an average investor return of 21%. Our fees are largely performance-based after investors have received their principal and interest.
MP Funds Management is focused on the retail property sector. The shift in dynamics is creating an opportunity to acquire well-located real estate with repositioning value.
In a twist of fate, Sydney’s autumn feels like spring. The sun is out, the weather is delightfully warm, and the sentiment is in full bloom after the results announcement of the Australian Federal Election. The Aussie dollar is falling which isn’t great if you are looking for opportunity because will create greater in-flows of offshore capital and result in localised competition.
Monday this week for me has been back to back meetings with clients, investors and catch-ups in Melbourne. It’s amazing the visceral improvement in sentiment since the results announcement of the weekend’s election.
From 2012 to 2017, MP Funds Management focused on investing in loans to finance the construction of residential apartment blocks. Over this period, we made 15 to16 deals (loans) delivering a combined investment return of around 15% to 26% pa with Leverage to Loan Ratios (LVRs) up to 85%. In most instances, we made sure that presales (excluding GST and agents’ commissions) covered our principal and interest with each loan meeting or exceeding the forecasted return.
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