CFS Gandel Retail Trust (GAN) Acquisition of 50% interest in Chatswood Chase shopping centre
10 October 2003
Colonial First State Property Retail Pty Limited, the Manager of the CFS Gandel Retail Trust (GAN), has today announced the acquisition of a 50% interest in Chatswood Chase shopping centre for $251.6 million (including acquisition costs).
The acquisition gives GAN its first regional shopping centre in Sydney and provides exposure to the high income demographic of Sydney’s upper north shore. With significant potential for upside through property management and development opportunities, together with an innovative ownership structure, this acquisition provides strong portfolio and fund benefits for GAN unitholders.
The property is being acquired in joint venture with the Commonwealth Bank of Australia (the ‘Bank’), whereby GAN and the Bank each hold a 50% interest in the property as tenants in common.
As part of the structured arrangements put in place to facilitate the acquisition, the Bank will receive an increasing fixed rate income distribution based on its share of the purchase cost. GAN will receive its 50% share of the income from the property plus any excess income over the Bank’s increasing fixed rate distribution. The Bank’s fixed rate income distribution has been set with regard to an underlying 5 year debt swap rate, and will step up each year at a predetermined rate.
The joint venture agreement includes a first right of refusal for GAN to acquire the Bank’s interest, subject to the satisfaction of certain conditions, and for any sale proceeds on the Bank’s share of the holding above an agreed predetermined level to be shared equally between the venture partners.
"The joint venture with the Bank is a great example of how the Manager has been able to access synergies within the Bank in a way that benefits unitholders and enables the Trust to acquire an interest in one of the best shopping centres in Australia" said GAN’s Fund Manager, Mr Bevan Towning.
GAN’s share of the purchase will be funded via debt through a Medium Term Note issue prior to settlement, which is expected on or around 14 November 2003. Following settlement, the Trust’s gearing is forecast to increase to approximately 28.5% at 31 December 2003.
IMPACT ON EARNINGS AND DISTRIBUTIONS
The purchase reflects a forecast Year 1 yield on total costs for GAN of approximately 6.4%.
The Manager forecasts that the acquisition will be earnings and distribution neutral for the first two years of ownership, with potential for upside in future years to be generated by cost savings and income initiatives and the centre’s strong development potential.
To ensure a neutral earnings outcome in the first two years, the Manager has committed to providing a distribution support mechanism whereby the Manager will provide distribution support of $1.75 million per annum over the first two years.
"Opportunities to acquire regional shopping centres, especially those of the premium quality of Chatswood Chase, only come about very rarely and are always very keenly priced. The Manager believes it can realise significant income and development upside in Chatswood Chase and will therefore provide income support while the centre reaches its full income potential." Mr Towning said.
The Manager has identified opportunities to increase both MAT and centre income through leasing strategies and operational efficiencies. In addition, the centre has expansion capacity of approximately 20,000 sqm of Gross Floor Area for both residential and retail uses within its current zoning. This potential further benefit to the Trust will be further reviewed by Gandel Retail Management Pty Limited, the property and leasing manager appointed by the Bank and GAN to manage the asset.
Mr Michael Gorman, GAN’s Portfolio Manager, said that the acquisition gives GAN its first Sydney asset and adds to the stable of high end fashion orientated centres within the GAN portfolio.
"Chatswood Chase is one of only a handful of regional malls which successfully focus on the premium fashion market. It has clear leasing and management synergies with GAN’s other premium assets at Chadstone Shopping Centre in Melbourne and QueensPlaza, currently under development in Brisbane’s CBD." Mr Gorman said.
Completion of the acquisition will leave GAN in the unique position of having the pre-eminent premium retail shopping centre in each of the three major capital cities on the Eastern seaboard.
JHD Advisors, who undertook a comprehensive analysis of the centre as part of the acquisition process, have confirmed the centre’s strong status, noting "Chatswood Chase is a uniquely positioned and well performing shopping centre which provides outstanding exposure to the best quality retail market in the country."
Chatswood Chase is a 49,270 sqm, four level, premium regional shopping centre located in the main commercial centre of Chatswood in the northern suburbs of Sydney. It is anchored by David Jones, Kmart, Coles and Harvey Norman and includes 128 specialty tenancies and 2,329 car parking spaces.
The Centre enjoys a very strong trade area that, according to JHD Advisors, contains "the greatest concentration of high income households in Australia." Total retail spend in the trade area is estimated at $4.9 billion per annum and is forecast to grow at some 2.3% per annum (before inflation) over the next ten years.
These sound demographics have translated into a very strong performance by Chatswood Chase to date. Moving annual turnover (MAT) for retail tenants was $331 million (ex GST) for the year to June 2003. In MAT/sqm terms this is 41% higher than the Australian regional shopping centre average.
Majors MAT/sqm was 50% higher than the Australian regional shopping centre average. Specialty shop MAT was also strong, with MAT/sqm 17% higher than the Australian regional shopping centre average. Specialty shop turnover has increased by an average of 8% per annum since 1999.
For further information please contact:
Fund Manager , Colonial First State Property
Tel: 02 8705 7181