Lendlease finds new suitor for Cairns Central in $400m play as shopping market resets

Sonlia owners Liana Hastie and Angela Moriconi inside their pop-up store at Cairns Central shopping centre. Picture: Brendan Radke

The big reset in shopping centre markets is taking ­another stride with property company Lendlease finding a new buyer for its Cairns Central complex in Far North Queensland, with funds house Haben in talks to ­secure the asset for close to $400m.

The deal comes amid a broad ­­­­re-rating of major retail property assets, ranging from large malls to sub-regional centres, as syndicators step up to buy from big institutions.

Private investors are being drawn to retail deals partly due to the sector’s operational resilience, with major landlords and Westfield owner the Scentre Group, and Vicinity Centres, co-owner of Melbourne’s Chadstone shopping centre, turning in strong financial results.

While the spectre of high interest rates looms over hard-pressed consumers’ spending and has prompted a jump in financing costs, the best centres are performing.

But the new breed of buyers are demanding assets at prices from which they can deliver healthy ­returns to their investors.

The main entrance to Cairns Central shopping centre. Picture: Brendan Radke

This pricing reset is coming as ­billions of dollars worth of shopping centres are on the block, with investors moving in after becoming more confident that retailers have a good handle on the shift to e-commerce in the wake of the pandemic.

After years of gloom about the prospects of larger malls, they are now performing well.

Many of the larger shopping centres are drawing more shoppers as they provide more services and entertainment options in the wake of the pandemic, while many everyday categories are also up.

Retailers are under pressure from higher rates cutting into discretionary spending, but landlords have been protected partly by leases linked to rising inflation and by a scramble for space in key centres.

JPMorgan analysts said retail property stocks surprised investors on the upside in the reporting season with all the major landlords reporting positive releasing spreads and strong net operating income growth.

Scentre, which runs 42 Westfields across Australasia, had a strong operational performance and chief executive Elliott Rusanow said that during the first half businesses in Westfield malls had sales of $13.1bn, an increase of 9.1 per cent, and they were running 13.6 per cent higher than in the same period in 2019.

Leasing spreads – a measure of new rent levels against previous rents – also turned positive at 2.6 per cent and the landlord had specialty rental escalations of 8.1 per cent.

“Demand for space in our Westfield destinations continues to be strong with occupancy increasing to 99 per cent,” Mr Rusanow said.

Rival operators were also strong.

Vicinity Centres chief executive Peter Huddle. Picture: John Feder

Vicinity Centres chief executive Peter Huddle said the company had focused on boosting the retail mix in its centres and was negotiating favourable leasing spreads to support ­income growth.

Sales were up 8 per cent year-on-year in the first half despite growth rates moderating in the June quarter. Occupancy bumped up to 98.8 per cent and food catering and retail, and jewellery, had the strongest growth rates, with luxury goods continuing a strong post-pandemic run.

“Although we do expect consumer pressure especially within the lowest- income households as a result of higher interest rates and inflation, Vicinity has performed well in reducing the exposure to short-term leases transitioning more than 200 shops from short-term to long-term leases,” Citi analysts said.

Vicinity’s leasing spreads of 0.3 per cent were strong but Citi said it ­expected these to turn slightly negative due to pressures on consumers.

Lendlease’s latest deal for the Cairns complex Central would see Haben acquire the landmark regional shopping centre at a yield of about 7 per cent and lock in the big valuation shift in the industry.

The property company’s flagship unlisted retail fund put the asset on the block earlier this year and in May won interest from Queensland real estate group McConaghy Properties at around the $430m mark.

That deal did not go ahead and the pricing shift is likely to reflect both higher interest rates and some concerns about more marginal retailers as the economy slows. The Lendlease-run fund has been looking to offload Cairns Central at a time when large mall trusts are under pressure from investors wanting to redeem at a time, but more buyers are now back in the market.

Scentre chief executive Elliott Rusanow. Picture: Britta Campion

Lachlan MacGillivray of Colliers International and Sam McVay of McVay Real Estate is broking the deal but declined to comment.

The parties also declined to comment but the North Queensland region in which the centre sits is benefiting from strong resources industry growth as well as the return of international tourism.

A deal with Haben would help the Lendlease fund’s longer-term plans to both meet redemption requests and to focus on repositioning select malls with mixed-use potential.

The trade could have wider implications for the shopping centre industry as it is another marker in determining the value of large malls, although landlords have sought to distinguish these from their city properties.

Haben, alongside other boutique property players, has been one of the key players in the market reset.

In April, it moved on the half stake of Stockland Townsville being sold by an AMP Capital fund for close to $130m, showing a discount to the co-owner’s book value. Co-owner Stockland wrote its interest in the asset back to that level at its recent results.

The sale of the stake by the now Dexus-run AMP Capital Shopping Centre Fund, being handled by JLL’s Nick Willis and Sam Hatcher, partly shows the recalibration of the broader retail industry and also the value that buyers are finding in geographies with strong growth.

Haben has been active and in March finalised a $256.5m deal to buy the Forest Hill Chase Shopping Centre in Melbourne’s eastern suburbs from US group Blackstone, in another sign of the retail market resetting.

Regional transaction volumes have averaged $1.2bn annually over the past 10 years. But in 2022, only one regional centre was traded when Sentinel Property Group bought Caneland Central shopping centre for $280m.

Cairns Central is anchored by a Myer, Kmart, Target, Coles, Woolworths and Event Cinemas. The complex is a lifestyle, entertainment and fashion destination and is one of the country’s top performers with sales of $492m per annum.

The Cairns centre has a GLA of 51,972sq m and occupies a landmark 9.4ha site, directly connected to Cairns railway station. As well as those major tenants, other retailers include City Beach, Daiso, iPlay Australia, Rebel, Best & Less, Terry White Chemmart and JB Hi-Fi.