The announcement last week that Scentre Group has entered into deals to sell Glenfield (in Auckland), Queensgate (in Lower Hutt), and Chartwell (in Hamilton) comes at a time when retail growth in terms of bricks and mortar is at the highest level since the 1970s. Analysts in the industry generally concur that Scentre’s strategy behind the move is to rid itself of lesser earning properties in favour of premium malls. In this regard, Paul Keane from insight-led property and design company,
RCG, reminds us that Scentre is the latest incarnation of Westfield. “Nothing really changed, just the ownership brand, with Scentre owning and managing all Westfield centres across Australia and New Zealand. In fact, these centres still trade under the Westfield brand.”
It really was no surprise in respect of the sale of all three as the centres were not strategic to the group and they have been on the table for sale for some time, says Keane.
“When Albany was developed and opened a few years ago, the writing was on the wall for Glenfield. This centre was developed in the 1970s and with Albany emerging, Glenfield became a bit of a backwater,” he points out.
“Glenfield will be owned by Ladstone Holdings, which previously purchased the Pakuranga Plaza from Scentre Group, before onselling it two years later at what was reported to be a very healthy profit. We suspect that Ladstone will employ similar skills with Glenfield, where it will add some value and then move it on.
“Likewise Chartwell in Hamilton. The development of Te Awa at the Base by Tainui took the strategic retail benefits away from Chartwell. Like Glenfield, Chartwell is a little hidden in terms of customer traffic exposure, and better located shopping centres have impacted.
“Queensgate in Lower Hutt is a slightly different kettle of fish. It is the dominant shopping centre in Wellington, but is probably hampered by its ability to expand to the size that would make it a truly dominant regional centre. Despite its offering, Lower Hutt is a dormant area that has some customer challenges. For all that, Queensgate does attract customers from the wider Wellington area, so there is an opportunity to enhance the offering to a wider audience.”
Queensgate and Chartwell have both been purchased by Diversified NZ Property Fund, a wholesale fund managed by Stride Property Group.
These two centres will add to Stride’s existing portfolio, which includes the brand new Northwest Shopping Centre in Massey, Auckland. Stride also announced the purchase of 18 Countdown supermarkets recently, “so it is really demonstrating its desire to bulk up its portfolio with a significant number of retail assets”.
Assets now under management by Stride, which have doubled over the past year, have increased from $1.3 billion to about $1.8 billion with acquisition of the shopping centres.
“Chartwell in particular will be a little challenging as a long-term hold. However, Queensgate has some significant potential, particularly with the opportunity offered by Wellington, given the paucity of sizeable retail offerings,” adds Keane.
So what do the sales indicate to the market about how Scentre Group sees its future in NZ?
According to Keane, the shopping centre portfolio of the group is still reasonably robust, but its representation has declined markedly.
In Auckland it has St Lukes, Manukau, Newmarket and Albany (along with WestCity, still up for sale), and in Christchurch it has Riccarton.
It also retained management rights and a controlling 51 per cent stake in the five malls which it sold partially to Singaporean sovereign wealth fund, GIC, in 2014.
“When the three centres have been handed over to their new owners, Scentre Group will effectively have just six malls in NZ, worth around $2.25 billion. A sale of Westfield WestCity could reduce that to five malls and $2.1 billion, and that is probably as far as the sales process will go,” says Keane.
“In terms of sales performance, these centres would be the top earners, so therein probably lies the answer as to how Scentre Group sees the NZ. A small and selective group of well-located centres, which can be improved by expansion and development, allows the group to focus its attention on achieving growth and results. Hence the sale process. It was also a good time for Scentre Group to sell, since property investors’ appetites for shopping centres have improved since 2008.
“Quite remarkable how the retail property industry changes. Is there more to come? Probably, some centres are looking a little tired. A good indicator is the standards of centres and how management maintains the portfolio. Scentre Group through the Westfield brand has always maintained high standards, some competitors not quite so. Potholes in carparks are always a good indicator of performance!”
Scentre’s latest announcement has not had much effect on its share price, unsurprising given that the group manages an A$41 billion portfolio. The sale of three NZ centres is not big enough news to make much impact.
Nerine Zoio: nerine@insideretail.co.nz