australia shopping centres australasia (sca)part of the sca portfolio, 8 were sold to a jv between...
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Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com/disclosures.
AUSTRALIA
Inside
Shopping Centres Australasia (SCA) 2
Juicy yield but only modest growth 3
Couldn‟t sell the assets in the direct
market 4
A look at the valuation metrics 7
Stock overhang from non-REIT
investors? 13
Overview of portfolio 14
The leases 21
How important is turnover rent? 24
Catchment analysis 26
The rental guarantees…mind the detail 30
Financial forecasts 31
Other key considerations for SCA 40
An overview of the offer & capital
distribution 41
Time table 42
Appendices 43
16 November 2012 Macquarie Securities (Australia) Limited
Shopping Centres Australasia (SCA) Juicy yield but mind the SCAffolding A new REIT backed by a strong covenant
SCA Property Group will commence trading on 26 November following a
proposed $425-506m equity raising at $1.26-$1.50 pending approvals
(principally at the Woolworths AGM on 22 November). The stock is a relatively
defensive proposition backed by a strong covenant with ~61% of gross income
derived from Woolworths‟ entities. Despite some concerns around growth with
anchor leases unlikely to breach turnover rent thresholds for at least the next
four years, SCA is a fairly low risk proposition centred on convenience retail.
NAV: $1.37-$1.40, $1.34-$1.44 on sector div yield basis
Our NAV valuation of $1.37-1.40 assumes 10-20bps of cap rate expansion
given Woolworths were unable to sell 20 of the portfolio assets in the direct
market having first announced intentions to reduce the amount of property on
balance sheet in September 2010. We also assume no income growth on a 12-
month forward basis considering our NTA start point incorporates the rental
guarantees. Despite this, we note „yield is king‟ at present and considering
SCA‟s closest comparable, CQR, the stock would price at $1.34 using its FY14
dividend yield. This increases to $1.44 using the market cap weighted FY14
dividend yield for the retail REITs under coverage (50%) and CQR (50%).
Limited growth excluding guarantees…but levers present
The attractive FY14 dividend yield is supplemented by a 5 year distributable
earnings CAGR of only ~2% (MRE forecast). Despite the limited growth we
note rental guarantees are in place for the first two years and there is a
structural vacancy allowance provided for in the PDS forecasts. In addition, the
FY14 dividend represents a payout ratio of 88% (group target: 85-95%), and
our DPS estimate is 104-117% free cash covered allowing scope for the
dividend to grow ahead of earnings. The management expense ratio (MER) is
also high at ~90bps. We assume ~$0.6m in cost savings in each of FY15 and
FY16 due to share registry savings with the registry likely to move to a more
institutional base over this time. The risk of a materially negative earnings
surprise in the near term therefore appears low.
Do these catchments need a shopping centre today?
We have completed a detailed analysis of the catchments for the top 10
shopping centres in the portfolio by NOI and the nine Australian assets in the
development portfolio. Whilst it is clear that there are some strong assets that
should perform well due to favourable catchment demographics such as
Pakenham (sub-regional, VIC) and Lane Cove (neighbourhood, NSW) there
are other assets that are likely to face more difficult leasing conditions in our
view including Mt Gambier (sub-regional, SA), Murray Bridge (sub-regional,
SA), Cabarita (Neighbourhood, NSW) and Treendale (neighbourhood, WA).
With Woolworths increasing its shopping centre presence in emerging markets
that are yet to stabilise we highlight there is concentrated leasing and rental
growth risk across some of these assets.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 2
Shopping Centres Australasia (SCA) Company Profile
Shopping Centres Australasia Property Group (SCA) is seeking to become an internally
managed ASX-listed property investment and management group focusing on retail
shopping centre assets in Australia and NZ.
On 5 October 2012 Woolworths (WOW.ASX) announced intentions to create SCA via an
in-specie distribution to existing WOW shareholders (1 SCA for 5 WOW) and a related
equity offer of 337.3m Stapled Units in SCA to raise $425-506m to partially fund the
acquisition of the portfolio. A detailed description of the offer is provided on page 41.
A resolution to approve the distribution via a capital reduction will be put to Woolworths
shareholders at its AGM on 22 November 2012. A full time table of the process is also
provided in Fig 55 (page 42).
Assuming approval, SCA is scheduled to commence trading on the ASX on 26 November
2012 on a conditional and deferred settlement basis. Our analysis in this report is based on
SCA obtaining necessary approvals and being created in the intended manner.
The vehicle will be a stapled security comprising a trust (SCA property management trust
and SCA property retail trust) containing developed and under-development retail property.
A diagram detailing the structure is provided in the figure below (LHS).
The SCA property group consists of a ~$1.4 billion property portfolio comprising 69 retail
assets (56 completed and 13 under development). 55 assets are located in Australia and a
further 14 are located in New Zealand.
As indicated in the below figure (RHS), neighbourhood centres comprise ~52% of the
portfolio‟s value followed by sub-regional assets (~30%) and freestanding assets (~18%).
Fig 1 Internally managed stapled structure of SCA Fig 2 The majority of the portfolio is neighbourhoods
Source: Company data, Macquarie Research, November 2012
Notes: 1. Weighted by completion value ($1,406m). Source: Company data, Macquarie Research, November 2012
Of the 13 development assets still to be completed from December 2012 to June 2014,
nine are in Australia and four are in NZ. Seven assets will be neighbourhood centres, five
will be freestanding and one will be a sub-regional asset.
Freestanding
18%
Sub-Regional
30%
Neighbourhood
Centre
52%
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 3
Juicy yield but only modest growth Couldn’t sell the assets in the direct market
In September 2010 Woolworths flagged intentions to sell~$900m in direct property given it
had conducted an increased level of property development during the GFC with the listed
REITs less active. Of the 32, eight were sold to a JV between CQR/Telstra Super (see page
4), four were sold to private investors and the remaining 20 are to form part of the SCA
portfolio. Given the group was unsuccessful in selling the assets in the direct market we are
of the view that NTA is inflated, with this listing a second option for the group. Accordingly, we
have assumed 10-20bps cap rate expansion in our NAV based valuation.
Show me the growth post rent guarantees
Rent guarantees are in place for two years on vacant space in the completed portfolio from
11 December 2012, and for two years from development completion of each of the 13
development assets. The rental guarantees underpin the relatively attractive dividend yield at
the low end of the range (8.3% vs the REIT sector at 6.2%) however we are more focussed
on growth in FY15 and beyond. Given anchor leases (~61% of gross revenue) are not likely
to breach turnover rent thresholds for at least four years, we believe excluding lease up and
development, the portfolio can only achieve EPS growth of ~2-3%. This growth profile
becomes less attractive at the top end of the range (6.9% dividend yield) considering SCA‟s
closest comparable, CQR (7.8% FY14 dividend yield) can deliver earnings growth of ~4% pa.
Do these catchments really need a shopping centre today?
We have analysed the catchment demographics of the top 10 assets in the portfolio and the
nine Australian assets in the development portfolio. We have defined catchments as a ~10km
radius for a sub-regional centre and ~5km for neighbourhood and freestanding assets.
Metrics considered in this analysis include population in the catchment, average population
growth from 2006-2011, average household earnings, people per household, house prices
and local auction clearance rates compared to national averages. Whilst acknowledging that
there are some strong assets in the portfolio including Pakenham (sub-regional, VIC) and
Lane Cove (neighbourhood, NSW) there are other assets that are likely to face more difficult
leasing conditions in our view including Mt Gambier (sub-regional, SA), Murray Bridge (sub-
regional, SA), Cabarita (neighbourhood, NSW) and Treendale (neighbourhood, WA).
The Woolworths leases…mind the detail
We have completed a detailed analysis of the Woolworths leases (see page 21). The leases
are turnover based only, i.e. there are no CPI escalators in place. All of the Woolworths
leases commence on 1 November 2012 and will therefore not have their first review until
December 2017. At this time, the new base rent for year six will be the prior base rent plus
the average turnover rent received in years 3-5 of the prior term. The leases are only semi-
gross, and SCA is liable for increases in cleaning and security costs. 37 anchor deals (of 63
in completed portfolio and 15 in development portfolio) have a milestone agreement whereby
a 5% increase in base rent will occur at the end of year five should turnover rent not have
been paid in the preceding five years.
How important is turnover rent for shopping centre rent growth?
We have analysed the proportion of anchor tenants in turnover and the percentage of net rent
that this represents for other retail REITs under coverage (see page 24). The former ranges
from ~20-50% of anchors and the latter from ~1-4% of net rent. Of the comparables, turnover
rent is most important for CQR with ~50% of anchors paying turnover rent equating to ~4% of
Australian net rent. Whilst appearing relatively low at face value, the delta here is to growth. If
for example anchor sales growth is ~4% in the CQR portfolio, anchor rent growth will be ~2%
(i.e. 50% x 4%). Turnover rent is therefore important for anchor rental growth.
No development profits for SCA
The 13 development assets will be sold into SCA on a completed value basis on a cap rate of
7.9%. Despite acknowledging no development risk, SCA does not have the ability to create
any value through asset development as the value uplift is captured by Woolworths. We
understand however incremental value uplift through redevelopment of existing assets can be
derived by the group going forward.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 4
Couldn‟t sell the assets in the direct market The background behind Woolworths’ property divestment
In September 2010 Woolworths announced intentions to seek interest on a portfolio of 32
retail shopping centre assets totalling ~$900m. The group indicated it was looking to divest
these assets to optimise its balance sheet. Woolworths had to increase the amount of on
balance sheet property development activity in the 2010-2012 years given reduced shopping
centre development from the listed REITs.
Of the 32 assets earmarked for disposal we understand only ~10-15 were completed, with the
balance still in development stages (typically land with DAs approved). Of the 32, 20 are now
part of the SCA portfolio, 8 were sold to a JV between CQR and Telstra Super (discussed
below) and the remaining four were sold to private investors. We understand the yields
obtained on the sale to private investors were in the range of 7.5-8.0% (relative to the
weighted average yield of the total portfolio of 8.1%).
We understand from management that Woolworths have no further completed centres of a
similar nature to that in the SCA portfolio on its balance sheet.
How successful was the group in this divestment program?
In FY11 Woolworths divested ~$380m in retail property, the largest transaction being the
~$266m sale of eight centres to a 50/50 JV between CQR and Telstra Super. In FY12 the
group divested a further ~$199m.
Considering the significant amount of property investment completed by Woolworths
(FY10: $420m, FY11: $603m, FY12: $926m according to our Woolworths analyst), we
believe the divestment program was below internal expectations and hence the desired
creation of SCA. We understand Woolworths also desired to create a new alternative take-
out party for its considerable shopping centre development pipeline with 15-25 shopping
centre openings per annum targeted in coming years. In addition, the proposed transaction
does not result in the crystallisation of stamp duty as would be the case with a direct sale
(excluding Queensland and SA as discussed on page 23).
What were the centre metrics on the 8 assets acquired by CQR/Telstra Super?
On 17 May 2011 CQR and Telstra Super acquired eight shopping centres (six
neighbourhood and two sub-regional) from Woolworths for $266m at an initial yield of
7.94%. The key metrics for each of the acquired assets is presented in the table below.
Fig 3 CQR’s acquisition had similar metrics to SCA’s portfolio except that the portfolio was much older
Asset Type State Date built
% of rent from
anchor GLA
(sqm) Number of specialties
Asset WALE
Anchor WALE Anchor (s)
Carnes Hill Sub-regional NSW Nov-99 46% 17,205 45 13.9 27.3 Woolworths, Big W, Dan Murphys Highlands Sub-regional NSW Mar-07 52% 16,483 36 17.1 30.0 Woolworths, Big W Pemulwuy Neighbourhood NSW Sep-05 47% 5,196 16 12.5 25.0 Woolworths Rutherford Neighbourhood NSW Feb-08 55% 6,949 21 16.4 26.0 Woolworths, Woolworths Liquor Thornleigh Neighbourhood NSW Jun-05 58% 6,704 17 17.3 25.3 Woolworths, Dan Murphy West Ryde Neighbourhood NSW Oct-05 47% 6,071 22 16.1 30.0 Woolworths, Woolworths Liquor Windsor Neighbourhood NSW May-09 61% 5,350 14 15.9 22.0 Woolworths Pakington Strand Neighbourhood VIC Nov-08 56% 5,817 18 18.0 28.0 Woolworths
Total/average Apr-06 51% 69,774 189 15.8 27.2
Source: Company data, Macquarie Research, November 2012
Portfolio was older than SCA’s. As indicated in the above table, the average age of the
portfolio CQR acquired was much older than that of SCA‟s. The average build age of April
2006 implies this portfolio is ~6.5 years old today, or ~5 years old at the time of acquisition
(May 2011). This is significantly older than SCA‟s average portfolio age at 2.1 years.
Indeed, 16 of SCA‟s assets (or ~29% by number) are less than one year old with a further
13 coming online as new centres. We are of the view that these assets should trade on
higher yields given they are yet to stabilise in their catchment and derive turnover rent.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 5
Assets also typically more metro than SCA’s. Five of the acquired centres (Carnes Hill,
Pemulwuy, Thornleigh, Windsor and West Ryde) are located in the Sydney and greater
Sydney metro area whereas the majority of SCA‟s portfolio is in regional locations.
A larger transaction between CQR/Telstra Super and Woolworths could not be
reached. Despite acquiring eight assets, we understand CQR considered the ~32 in total
(discussed above) but a deal could not be reached possibly due to lower than expected
income growth from the anchor leases in the portfolio.
CQR obtained special terms on anchor deals to ensure growth at four centres. On
four of the eight acquired assets CQR negotiated to obtain a 5% increase after a five year
milestone on the anchor deal should that anchor not have paid turnover rent in the
preceding five year period. Given expectations that it would be difficult to hit turnover
thresholds in some of these centres, this was required to achieve anchor rent growth.
Do Woolworths develop high quality, high performing shopping centres?
We have considered Woolworths skill set as a property developer to ascertain whether they
build competitive shopping centres in their respective catchments. As indicated in the table
below, Woolworths developed three of the top 20 shopping centres in the 2012 „Mini Guns‟
survey that measures the top performing shopping centres in Australia in the 6,000 to 20,000
sqm range.
Fig 4 Woolworths developed three of the top 20 centres by sales productivity (6,000 – 20,000 sqm)…
Rank Asset State Owner/Manager MAT ($m)
/sqm % chg
y-y GLA/m2 Specialties Avg spend/
visit Date
opened
9 West Ryde Marketplace NSW CQR/Telstra Super / CHC $13,917 -7.8% 6,071 22 $25.54 2005 16 Rutherford Marketplace NSW CQR/Telstra Super / CHC $13,105 5.2% 6,930 18 $33.30 2011 18 Thornleigh Marketplace NSW CQR/Telstra Super / CHC $12,902 -1.2% 6,870 23 $44.10 2005
Source: Shopping Centre News, Macquarie Research, November 2012
In addition, Woolworths developed five of the top 20 shopping centres (again 6,000 – 20,000
sqm) on a total MAT basis as indicated in the below table.
Fig 5 …it also developed five of the top twenty sites by total MAT (6,000 – 20,000 sqm)
Rank Asset State Owner/Manager MAT ($m) % chg
y-y GLA/m2 Specialties Avg spend/
visit Date
opened
4 Menai Marketplace NSW LLREP3/LLPM $162 -1.6% 16,439 50 $31.65 1994 7 Plumpton Marketplace NSW SASTC/Dexus $145 1.0% 18,519 60 $26.00 1994 9 Richmond Marketplace NSW ISPT/JLL $141 1.0% 18,261 56 $37.40 1997 15 Carnes Hill Marketplace NSW CQR/Telstra/CH $131 7.3% 17,208 36 $35.18 1999 20 Beenleigh Marketplace QLD OSFCRP/CFSGAM $126 -7.2% 17,356 63 $38.00 1999
Source: Shopping Centre News, Macquarie Research, November 2012
Whilst encouraging that the group is able to build centres that derive strong sales productivity,
we note that this does not necessarily drive rental growth for the landlord given proximity to
turnover thresholds and specialty tenant performance. In addition, with all of the above
centres being constructed in 2005 or earlier (excluding Rutherford Marketplace in 2011) it is
clear that it takes time for sales to ramp up and mature in these centres.
Was Woolworths prepared to meet the market in its divestment program?
We have analysed the key metrics of transactions of neighbourhood and sub-regional
shopping centres in Australia since Woolworths first indicated intentions to divest property
(September 2010). In Fig 74 (Appendix 4, page 53), we provide a summary of 76
neighbourhood shopping centre transactions and 20 sub-regional transactions.
The key takeaways from the analysis are:
The weighted average initial yield for neighbourhoods was 8.38%. The weighted
average yield for neighbourhood asset sales in the direct market over this period was
8.38%. Woolworths are vending the Australian neighbourhood assets into the portfolio at
8.23%. This cap rate however is on a „fully leased‟ basis with significant specialty vacancy
present in the portfolio initially.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 6
Sub-regional weighted average yield was 8.07%. Whilst only slightly higher than the cap
rate of 7.91% in the completed portfolio for Australian sub-regional assets, we highlight
again that this is a fully leased cap rate and leasing risk is present in the SCA assets.
So is book value appropriate for these assets?
Considering the relative difficulty Woolworths had in selling property in the direct market,
special terms that needed to be embedded on ~50% of the anchor deals in the assets
acquired by CQR/Telstra Super, and the higher yields on transacted assets in the direct
market in the last two years, we believe a discount needs to be applied to SCA‟s NTA to
better reflect underlying value.
In our SOTP valuation we have assumed cap rate expansion of 10-20bps to reflect this
(implying a ~1-3% decline in asset values).
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 7
A look at the valuation metrics Considering the reasonably attractive dividend yield on offer from SCA albeit underpinned by
rental guarantees in the initial years and the relatively tight pricing on the assets in the
portfolio there are a wide range of valuation metrics for the group. The table below highlights
our valuation range for SCA using a NAV, PE, dividend yield, FCF yield and DCF. We place
most reliance on our NAV methodology.
Fig 6 Primary valuation methodologies sit at the mid-point of the offer
Notes: 1. Priced close of trade 14 November 2012. 2. Low end of PE, dividend yield and FCF is based on CQR with the high end based on the MCWA of the retail REITs under coverage (50%) and CQR (50%). 2. Low end of DCF assumes terminal growth rate of 2.2%. High end assumes 2.4%. Source: Company data, Macquarie Research, November 2012
In relation to our valuation metrics we note:
NAV: Our NAV assumes ~10-20bps in cap rate expansion and deducts corporate costs
capitalised at 10x (see Fig 7 on page 8 below);
DPS yield: We deem this to be the overarching emphasis of investors at the moment;
PE basis: The PE valuation supports a stock price above the offer price range however we
note that ~14% of the earnings are non-cash, relating to rental straight lining;
FCF yield: The FY14 FCF yield for SCA is supported by rental guarantees. Given our
assumed roll off, FCF growth for SCA is actually flat on a three year CAGR basis.
DCF
FY14 FCF yield
FY14 PE
FY14 DPS yield
NAV
Offer price
1.25 1.30 1.35 1.40 1.45 1.50 1.55 1.60 1.65 1.70
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 8
In the below table we present our SOTP valuation for SCA.
Fig 7 SCA SOTP valuation, $1.37 to $1.40 reflecting cap rate expansion of 10-20bps & no income growth
Starting point
Starting cap rate
(%)
Expansion/ (compression) (%)
Valuation cap rate/multiple (%/x)
Income growth (%) Premium/ (discount) to
book value (%)
Going concern valuation ($m)
$m Low High Low High Low High Low High Low High
Australia Sub-regional 420 7.9% 0.2% 0.1% 8.1% 8.0% -% -% (2.5%) (1.2%) 409 414 Neighbourhood 658 8.2% 0.2% 0.1% 8.4% 8.3% -% -% (2.4%) (1.2%) 643 650 Freestanding 155 7.7% -% -% 7.7% 7.7% -% -% -% -% 155 155 NZ Neighbourhood 72 7.9% 0.2% 0.1% 8.1% 8.0% -% -% 8.8% 10.1% 79 80 Freestanding 102 8.0% -% -% 8.0% 8.0% -% -% 11.5% 11.5% 114 114
Total property assets 1,406.8 8.1% 8.2% 8.1% 1,399 1,413 Interest-bearing debt (490) (490) (490) Cash & cash equivalents 5 5 5 Net debt (485) (485) (485) Other tangible assets 2 2 2 Other liabilities - - - Other net assets/(liabilities) 2 2 2 Net tangible assets 924 916 930 Securities on issue (m) 584 584 584 NTA per security ($) 1.58 1.57 1.59 Unallocated corporate costs (11) 10.0x 10.0x (113) (113) Net adjustments ps ($) (0.19) (0.19)
NAV per security 1.37 1.40
Notes: 1. Our NAV is based on a fully invested basis, i.e. post the ~$134.5m spend on the development portfolio. Source: Macquarie Research, November 2012
Key assumptions in deriving our NAV include:
Cap rate expansion of 10-20bps. We have assumed cap rate expansion in the sub-
regional and neighbourhood assets of 10-20bps reflecting 1) the assets proved difficult to
sell in the direct market, 2) there is significant specialty vacancy in the portfolio to lease-up
and 3) the assets are new and still in a maturation phase in their respective catchments.
We have not adjusted the cap rates of the freestanding assets given they have no
specialty leasing risk.
No income growth on a one year forward basis. We have assumed zero income growth
for each asset category reflecting the fact that initial rent is underpinned by rental
guarantees, the value of which is captured in our starting NTA. Over and above this we do
not forecast any growth from the anchor leases (~61% of total portfolio income) on a one
year forward basis.
Corporate costs capitalised at 10x. Inline with the NAV methodology applied to all REITs
under coverage, we capitalise corporate costs at 10x in our NAV. We have adopted our
FY16 corporate costs in our valuation as these are post ~$1.2m in cost savings expected
to be realised principally from reducing the number of individual retail investors on the
share register.
As indicated in the chart below, at the low end of our NAV ($1.37) the stock would trade at a
discount of ~8% if the offer took place at $1.26. The discount to NTA is ~20% on this same
basis.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 9
Fig 8 Significant discount to NTA at the low end compared to the sector
Notes: 1. Priced close of trade 14 November 2012. Source: Company data, Macquarie Research, November 2012
This compares reasonably favourably to the other retail REITs under coverage trading at ~5%
discounts to 1% premiums to NAV (excluding WRT given we set our price target for this stock
on a FCF yield basis).
However at the high end of the range ($1.50), SCA would trade at a ~9% premium to our
NAV valuation (low end), making it relatively expensive to the retail REITs under coverage.
DCF valuation $1.49ps
We corroborate our NAV valuation with our DCF based valuation. The key assumptions
incorporated in our DCF include:
Asset beta of 0.63 (compared to CQR at 0.63, CRF at 0.64, WRT at 0.53. CFX at 0.55 and
GPT at 0.58);
Long-term debt to equity of 53.8%;
Levered cost of equity of 9.8%;
Post-tax long term cost of debt of 7.25%;
WACC of 8.9%; and
Terminal growth rate of 2.2%.
A summary of our DCF is provided in the table below.
Fig 9 Summary of DCF valuation…inline with NAV at the mid-point
Enterprise value $m 1,223 Less: Net debt $m (350)
Equity value $m 873 Securities on issue m 584 Value per security $ 1.49 Difference from SOTP midpoint % 7.8%
Source: Macquarie Research, November 2012
Our DCF valuation of $1.49 is ~8% ahead of the mid-point of our NAV valuation.
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
SC
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CR
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(100.0%)
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-%
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Premium/(discount) to NAV (LHS) Premium/(discount) to NTA (RHS)
Retail peers
Predominantly Australian
rent collectors
Other
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 10
Dividend yield attractive but underpinned by rental guarantees
SCA offers a dividend yield range of 6.9-8.3% in FY14. Despite being attractive relative to
other stocks under coverage we note CQR is offering 7.8% (free cash covered).
Fig 10 Dividend yield attractive at the low end but underpinned by guarantees
Notes: 1. Priced close of trade 14 November 2012. Source: Company data, Macquarie Research, November 2012
FCF yield also attractive at the low end
We have considered the free cash flow yield of SCA at the low and high end of the range
compared to other stocks under coverage. As indicated in the chart below, at the low end
($1.26), SCA‟s FCF yield in FY14 of 9.5% is attractive relative to CQR at 7.9% and the larger
retail REITs ranging from 6-7%. Again however, at the high end, the FCF yield of 8.0% is
inline with CQR at 7.9%. SCA‟s free cash flow is also inflated by rent guarantees in FY14 with
our FY15 FCF growth moderating to 2.1% (CQR: 3.6%) and only delivering a flat annual
outcome on a three year CAGR basis.
Fig 11 Attractive cumulative FCF yield at the low end of the range
Notes: 1. Priced close of trade 14 November 2012. Source: Company data, Macquarie Research, November 2012
FY14 DPS yield
-%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
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Retail peersPredominantly Australian
rent collectors
Other
9.5%8.0% 7.3% 6.3%
7.9% 6.7% 6.4% 6.0% 6.3%8.1%
6.6% 7.2% 7.7% 8.1% 8.4%10.2%
7.2%10.1%
3.7%5.2%
-%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
SCA -
Low
SCA -
High
CRF CFX CQR GPT WRT CPA DXS GOZ IOF MGR SGP ABP ALZ APZ CHC FKP LEP WDC
FY14 FCF yield FY15 FCF yield FY16 FCF yield
Retail peersPredominantly Australian
rent collectors
Other
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 11
Looks relatively cheap on a PE basis but depends on definition of ‘earnings’
SCA also screens cheaply on a FY14 PE basis at 9.7x (low end) compared to CQR at 11.7x.
Our PE is based on our definition of underlying earnings (i.e. pre rental guarantees and other
cash adjustments discussed on page 33). The strong EPS growth in FY15 is specialty lease
up and development driven (full year benefit of development portfolio completed in FY14).
Fig 12 Attractive on a PE basis but earnings aren’t necessarily cash
Notes: 1. Priced close of trade 14 November 2012. 2. APZ falls outside of the above parameters. Source: Company data, Macquarie Research, November 2012
The table below provides the metrics for the comparable data set for SCA.
Fig 13 Key metrics compared to the passive REITs
SCA -
Low SCA - High CQR CRF BWP
1 CFX WRT GPT GOZ CPA IOF
Weighted average excluding SCA
Market cap ($m) n/a n/a 1,170 3,026 1,110 5,445 9,407 6,095 839 2,441 1,738 Last close / offer 1.26 1.50 3.56 2.12 2.05 1.93 3.08 3.45 2.15 1.04 2.83 NTA 1.58 1.58 3.38 2.21 1.85 2.07 3.37 3.65 1.93 1.16 3.14 Price/NTA -20.3% -5.1% 5.3% -4.1% 10.8% -7.0% -8.6% -5.5% 11.4% -10.3% -9.9% -5.7% FY14 EPS 12.9 12.9 30.3 16.5 14.2 13.3 20.7 24.7 18.9 7.8 22.0 FY14 PE (x) 9.7 11.6 11.7 12.8 14.4 14.4 14.9 13.9 11.4 13.3 12.9 14.0 FY14 DPS 10.4 10.4 27.7 14.0 14.3 14.0 20.7 20.6 17.1 6.4 17.9 FY14 div yield 8.3% 6.9% 7.8% 6.6% 7.0% 7.3% 6.7% 6.0% 8.0% 6.1% 6.3% 6.7% FY15 EPS gth 6.0% 6.0% 3.9% 4.8% 5.6% 2.8% 5.3% 4.1% 6.8% -2.7% 5.1% 3.9% Aus occupancy 95.0% 95.0% 98.6% 99.5% 100% 99.7% 99.5% 99.1% 99% 95.5% 98.0% 99.0% Aus cap rate 8.10% 8.10% 8.18% 7.39% 7.91% 6.45% 5.90% 6.10% 8.30% 7.53% 7.61% 6.6%
Note: 1. Consensus estimates for BWP as stock not under coverage. 2. Portfolio metrics as at 30 June 2012. 3. Priced close of trade 14 November 2012. Source: Macquarie Research, November 2012
The chart below highlights the potential pricing outcomes for SCA incorporating different
combinations of earnings, dividend yields and price to NTA from comparable companies in
the above table.
WRTGPT
CQR
CFX
CRF
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
FY15F EPS growth
FY
14 P
E
Retail peers Predominantly Australian rent collectors Other
SCA - Low
SCA - high
ABP
CPA
WDC
GOZ
ALZ
FKP
SGP
IOFCHC
DXS
MGR
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 12
Fig 14 SCA would price at ~$1.52 incorporating CQR’s FY14 PE
Notes: 1. Priced close of trade 14 November 2012. Source: Company data, Macquarie Research, November 2012
Valuation conclusion…attractive at the low end
At the low end of the range SCA offers compelling value with a dividend yield of ~8.3%, well
ahead of the sector (6.2% overall or 6.7% in above comp set). At the high end however, the
FCF yield of 8.0% is inline with that of CQR (7.9%). We are of the view that the SCA portfolio
is likely to achieve lower growth in initial years compared to CQR (excluding specialty lease-
up and development activity which is already captured in the starting NTA) given it will take at
least four years for Woolworths leases to begin to achieve turnover rent. This is best
illustrated via our FCF forecast, where we assume a flat three year CAGR. On this basis it
looks less attractive at the top end of the range.
1.26
1.34
1.49 1.50 1.521.56 1.58
1.66
1.81
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
Low offer
price
CQR div
yield
Avg P/NTA High offer
price
CQR PE Avg div
yield
NTA CQR
P/NTA
Avg PE
($)
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 13
Stock overhang from non-REIT investors? We consider the potential stock overhang for SCA upon listing with the register to include
investors with more of a growth bias. As indicated in the chart below, 247m SCA securities
(~42% of the register) will be allocated as part of the capital distribution (1 SCA for 5 WOW).
Fig 15 ~42% of shares outstanding going to Woolworths investors
Notes. 1. Represents SCA shares outstanding in millions. Source: Company data, Macquarie Research, November 2012
Woolworths register ~50% institutional / ~50% retail. Given Woolworths has ~420,000
separate investors which will become investors in SCA post the in-specie distribution, SCA
will offer a „mop up‟ facility to reduce the number of unmarketable parcels of securities and
reduce administrative costs. According to Woolworths, ~50% of the register is retail with
the balance institutional (~25% domestic and ~25% offshore).
Non-REIT investors to sell interest initially. With half of the ~42% of the register
receiving the capital distribution likely to be non-REIT investors (~i.e. ~21% overall), we
believe some of these investors are likely to have more of a growth mandate. We therefore
believe there is likely to be some change in the SCA register initially.
Index inclusion…in-specie on 26 November, balance 21 December
Our index team are of the view that the in-specie component of SCA (247m securities) will be
included in the ASX REIT 200 and 300 from 26 November with an expected index weight of
0.49%. They estimate passive demand of 22m shares. Shares issued under the equity raise
(337.3m securities) will be added to the indices at COB Friday, 21 December 2012. The table
below provides the indicative index weight for SCA post the 337.3m equity raise (i.e total).
Fig 16 SCA will represent ~1.1% of the ASX REIT 200 at the mid-point
1.26 (low) 1.38 (mid) 1.50 (high)
ASX200 0.07% 0.08% 0.08% ASX300 0.07% 0.08% 0.08% REIT 200 0.98% 1.07% 1.17% REIT 300 0.97% 1.07% 1.16%
Notes: 1. Pricing as at 14 November 2012. Source: Macquarie Research, November 2012
In terms of the MSCI, the SCA in-specie component will enter the MSCI AU Small Cap
with an expected weight of ~0.4% (~0.9% including equity raise component). Estimated
passive buying of SCA in the MSCI small cap is around 10m shares. These changes are
expected to be applied to the MSCI indices at the close on Monday 26 November.
REIT investors therefore have time. The initial index implications (ASX REIT 200/300) of
the in-specie component is modest (~0.5% weighting) at the mid-point however will be
more significant post the 21 December rebalance including the equity raise proceeds (total
weighting expected to be ~1.2% at $1.50ps).
Equity raise, 337.3,
58%
Capital distribution,
247, 42%
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 14
Overview of portfolio Shopping Centres Australasia (SCA) has a portfolio of shopping centre assets across
Australia (55 assets) and NZ (14 assets). The portfolio is largely exposed to the eastern
states of Australia with NSW (28%), Victoria (21%) and Queensland (16%) being the largest
states (by value). The portfolio is predominately exposed to neighbourhood shopping centres
as indicated in the chart below (RHS).
Fig 17 ~28% of the portfolio is in NSW (by value) Fig 18 ~52% allocation to neighbourhood (by value)
Notes: 1. On a fully completed basis. 2. NSW is 29% by NOI and Victoria is 20%. Source: Company data, Macquarie Research, November 2012
Notes: 1. On a fully completed basis. Source: Company data, Macquarie Research, November 2012
The below chart highlights the location and shopping centre type of the assets in the portfolio.
Fig 19 Geographic exposure by GLA
Notes: Includes completed (56) and development properties (13). Source: Company data, Macquarie Research, November 2012
WA
11%
NZ
12%
SA
12%
QLD
16%
NSW
28%
VIC
21%
Freestanding
18%
Sub-regional
30%
Neighbourhood
Centre
52%
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 15
How does the portfolio exposure compare to other retail REITs?
We have considered the allocation to shopping centre type for the retail portfolios of REITs
under coverage (by value). As indicated in the table below, the most comparable portfolio to
SCA is CQR, which has a 53% weighting to neighbourhood centres (SCA: 52%), 34% to sub-
regional centres (SCA: 30%) and 11% allocation to freestanders (SCA: 18%).
Fig 20 SCA’s portfolio is most closely comparable to that of CQR
Notes: 1. Represents Australian portfolios only. 2. Weighting is by value (REIT‟s stake in each centre). 3.‟Other‟ for CFX comprises DFO. 4. CQR has been adjusted for the sale of Mile End (bulky goods) and acquisition of three sub-regional centres announced 18 October. 5. CRF is for the direct portfolio only. 5. SGP has a 6% allocation to Regional following the opening of Myer in Townsville in October 2012. Source: Company data, Macquarie Research, November 2012
Specialty sales productivity lower but expected given young age of portfolio
We have also considered the retail portfolio metrics of the shopping centre REITs under
coverage. Given the relatively young age of the SCA portfolio (2.1 years) with 16 of the 56
completed centres (~29%) less than 12 months old, it is not surprising that current specialty
sales per sqm are well below the peer set, in particular to CQR at $8,100 sqm.
Fig 21 Lower sales productivity and occupancy than CQR but higher value/sqm
Stock MAT/sqm Spec MAT / sqm
Specialty occ cost
Cap rate Value/sqm Occupancy
GPT2 6,799 8,981 17.8% 6.10% 8,895 99.10%
CFX3 6,639 9,224 17.1% 6.45% 8,841 99.70%
CRF4 6,718 7,716 14.6% 7.39% 4,785 99.50%
SGP 6,255 8,444 14.1% 7.10% 5,565 99.40% MGR 7,359 7,491 14.9% 7.25% 4,195 99.20% WRT 5,916 9,881 18.9% 5.90% 10,034 99.50% CQR 8,700 8,100 8.5% 8.18% 3,380 98.60% SCA n/p 4,600
5 11-13%
6 8.10% 3,374 95.00%
Notes: 1. All data is at 30 June 2012 given not all stocks provide quarterly updates. 2. Includes GWSCF assets. 3. Excludes DFO and Entertainment Quarter. Includes Chadstone office (minor) as unable to remove. 4. CRF direct portfolio only. 5. MRE estimate based on occ cost and specialty rent per sqm. 6. SCA estimate. Source: Company data, Macquarie Research, November 2012
As indicated in the chart below, SCA‟s value per sqm and cap rate match most closely with
that of CQR. Given fewer barriers to entry for these assets compared to large regional
shopping centres these portfolios have higher cap rates and lower value per sqm.
37%
20%
45%
6%
94%45%
35%
4%
78%
13%
79%
49%
34% 30%
14%
8%
16%
53%52%
11%18%1%
-%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
WDC/WRT SGP GPT CFX MGR CRF CQR SCA
Super-regional Regional Sub-regional Neighbourhood
Bulky goods CBD Freestanding Other
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 16
Fig 22 SCA’s value per sqm and WACR match most closely with that of CQR
Source: Company data, Macquarie Research, November 2012
Despite matching closely to CQR in the above chart which is expected given the very close
nature of its portfolio, SCA‟s value per sqm is inline with CQR‟s at $3,372 per sqm (CQR:
$3,380 per sqm) despite the specialty sales productivity being markedly lower.
Fig 23 Despite lower sales productivity SCA is comparable to CQR’s value/sqm
Source: Company data, Macquarie Research, November 2012
CRF
SGP
SCA
-
2,000
4,000
6,000
8,000
10,000
12,000
5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50%
Value/sqm A$
WACR
Predominately
regional
Predominately
sub regional
CQR
WRT
GPT CFX
MGR
Predominately
neighbourhood
GPT
CFX
CRF
SGP
-
2,000
4,000
6,000
8,000
10,000
12,000
4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000
Value/sqm A$
Spec MAT/sqm
WRT
CQR
MGR
SCA
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 17
The top 10 assets in the portfolio represent ~39% of group NOI
The top ten assets by NOI contribution in the SCA portfolio equate to ~39% of group NOI as
indicated in the below table. Considering the importance of these assets to group NOI we
have completed a catchment analysis for each of these centres in Fig 39 (page 26).
Interestingly, Lilydale Marketplace, Greystanes and Katoomba Marketplace are part of the
development portfolio and yet to formally commence trading.
Fig 24 Top ten largest assets in SCA portfolio represent ~39% of NOI
Property State Property type GLA
(SQM)
% of portfolio
GLA
Forecast fully leased
NOI (A$M)
% of Portfolio
NOI
Kwinana Marketplace WA Sub-regional 28,139 6.7% 7.08 6.2% Lilydale Marketplace VIC Sub-regional 21,997 5.3% 6.45 5.7% Mt Gambier SA Sub-regional 27,093 6.5% 5.26 4.6% Pakenham VIC Sub-regional 17,668 4.2% 4.98 4.4% Murray Bridge SA Sub-regional 18,306 4.4% 4.79 4.2% Central Highlands QLD Sub-regional 18,855 4.5% 4.64 4.1% Greystanes NSW Neighbourhood Centre 5,559 1.3% 3.04 2.7% Katoomba Marketplace NSW Freestanding 9,387 2.3% 2.89 2.5% Lane Cove NSW Neighbourhood Centre 6,721 1.6% 2.83 2.5% Chancellor Park Marketplace QLD Neighbourhood Centre 5,203 1.2% 2.24 2.0% Total
158,928 38.0% 44.2 39.0%
Source: Company data, Macquarie Research, November 2012
The tenants
As indicated in the below table, ~51% of fully leased gross income is anticipated to be
payable by Woolworths (Countdown in NZ) supermarkets, with Woolworths related entities
comprising ~61% of the rent in total (Big W: ~9%, Dan Murphy‟s: ~2%).
Fig 25 ~51% of fully leased gross income from Woolworths, ~9% from Big W
Portfolio diversification
Name Number of
stores GLA(sqm) % of GLA
Fully Leased Gross
Income($m)
% of Fully Leased Gross
Income
Neighbourhood Centre Woolworths/Countdown 41 147,493 35% 47.6 32.5%
BIG W - - - - - Dan Murphy's 1 1,588 0% 0.6 0.4% Specialty 415 53,860 13% 29.5 20.1%
Sub Total 457 202,941 49% 77.7 53.1% Sub-regional
Woolworths/Countdown 7 36,768 9% 9.8 6.7% BIG W 6 47,002 11% 9.5 6.5% Dan Murphy's - - - - - Specialty 247 48,288 12% 27 18.4%
Sub Total 260 132,058 32% 46.3 31.6% Freestanding
Woolworths/Countdown 16 54,532 13% 16.8 11.5% BIG W 3 21,147 5% 3.2 2.2% Dan Murphy's 4 5,656 1% 2.1 1.4% Specialty 4 609 0% 0.3 0.2%
Sub Total 27 81,944 20% 22.4 15.3% Total Portfolio
Woolworths/Countdown 64 238,793 57% 74.3 50.7% BIG W 9 68,149 16% 12.7 8.7% Dan Murphy's 5 7,244 2% 2.7 1.8% Specialty 666 102,757 25% 56.8 38.8%
Total 744 416,943 100% 146.4 100%
Notes: 1. Represents completed and development portfolio. Source: Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 18
Based on our understanding of the occupancy costs for each tenant type we estimate the key
rent and sales metrics for the portfolio in the table below.
Fig 26 Supermarkets paying ~$300 per sqm, spec’s ~$550 per sqm
Stores GLA Gross
income Rent per
sqm Occ cost
Implied sales
productivity
Woolworths/Countdown 64 238,793 74.3 311.1 2.5% 12,446 BIG W 9 68,149 12.7 186.4 4.0% 4,659 Dan Murphy's 5 7,244 2.7 372.7 2.5% 14,909 Specialty 666 102,757 56.8 552.8 12.0% 4,600
Total 744 416,943 146.5 351.4
Notes: 1. Represents completed and development portfolio. Source: Macquarie Research, November 2012
The specialty tenants
There are 666 specialty tenants across the portfolio. Within this, 415 are in neighbourhood
centres, 247 are in sub-regional centres and four are in freestanding assets. The four
specialty stores in the freestanding assets are food services businesses (we understand
predominately cafes).
As indicated in the below chart (LHS), the most predominant type of specialty tenant is
general retail at ~25% of gross income, followed by food catering at ~18% and retail services
at ~16%. Examples of general retailers include discount variety, pharmacy, florists, pets, toys
and gift stores. These specialty tenants are split between ~52% national retailers and ~48%
local (a local retailer is defined as a tenant that is a not owned or affiliated with a national
chain and typically has less than ~5 stores in total).
Fig 27 ~25% of specialty tenants general retail Fig 28 ~52% are national chains with ~48% local
Notes: 1. Based on fully leased gross income for first full calendar year from implementation date for completed portfolio and from completion date for Development portfolio. Source: Company data, Macquarie Research, November 2012
Notes: 1. Based on fully leased gross income for first full calendar year from implementation date for completed portfolio and from completion date for Development portfolio. Source: Company data, Macquarie Research, November 2012
In terms of marginal users for space entering the portfolio at present, we understand
healthcare (medical centres, pharmacies etc) and independent gyms have been active.
Occupancy and specialty occupancy by asset
Upon implementation date (11 December 2012), the portfolio is anticipated to be 95%
occupied, with specialty occupancy of 80%. Excluding two assets, Kwinana Marketplace and
Treendale, we understand specialty occupancy at December 2012 is 91%.
Other, 6% Retail Services,
16%
Apparel, 11%
Food Retail,
10%
leisure, 6%
Non-retail, 5%Mini Major, 5%
General Retail,
25%
Food Catering,
18%
National
52%
Local
48%
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 19
The below chart (LHS) highlights the bottom 10 assets by occupancy (by area). The chart on
the right represents the bottom 10 assets by specialty occupancy. Given rental guarantees
are in place (discussed on page 30) for two years on vacant specialty space from 11
December 2012, the immediate impact of this occupancy is negligible. SCA‟s ability to lease
up this space is important however for the entity to be able to achieve earnings growth in the
medium term.
Fig 29 Bottom 10 assets by total occupancy Fig 30 Bottom 10 assets by specialty occupancy
Notes: 1. Based on area. 2. Completed portfolio only. Source: Company data, Macquarie Research, November 2012
Notes: 1. Based on area. 2. Completed portfolio only. Source: Company data, Macquarie Research, November 2012
Key vacancies in the completed portfolio to be leased up are:
Kwinana Marketplace (Sub-Regional, WA). This is the largest asset in the bottom 10 list
at ~28,139 sqm (average of remaining nine is ~4,906 sqm). This asset was acquired from
MGR in May 2010 as „Kwinana Hub Shopping Centre‟. It has been redeveloped on a
staged opening with Big W to commence trading in December 2012 and specialties in
March 2013. Specialty occupancy at the site is only ~68%. We have considered the
catchment for Kwinana and likelihood for lease-up in Fig 39 (page 26).
Treendale (Neighbourhood, WA). This asset is ~7,280 sqm in total and is only estimated
to have specialty occupancy of ~48% at 11 December 2012. In the bottom 10 specialty
occupancy list this asset has the largest specialty GLA of ~3,786 sqm (average of
remaining nine is 739 sqm). This asset has been created on prior farm land as part of a
new suburb. It opened in February 2012. Considering the relatively low specialty
occupancy to date despite the asset being opened for ~10 months we believe it may be
difficult to lease up the specialty space in the near term.
Lismore (Neighbourhood, NSW). This asset was completed in December 1985 and is
the only asset in the portfolio not to have been developed by Woolworths. With total
occupancy of 85% and specialty occupancy of 63% this appears to be more of a structural
issue for the centre.
Other vacancies include:
Warkworth (Neighbourhood, NZ). This asset was completed in September 2012.
~421 sqm of specialty space remains to be leased up at this asset.
Bright (Neighbourhood, VIC). This asset was completed in April 2010. ~358 sqm of
specialty space remains to be leased up at this asset.
Woodford (Neighbourhood, QLD). This asset was completed in April 2010. ~441
sqm of specialty space remains to be leased up at this asset.
Mission Beach (Neighbourhood, QLD). This asset was completed in June 2008.
~451 sqm of specialty space remains to be leased up at this asset.
Cardiff (Neighbourhood, NSW). This asset was completed in May 2010. ~644 sqm of
specialty space remains to be leased up at this asset.
90% 90% 89% 89% 89% 89% 88% 85% 83%
73%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
West D
ubbo
Co
wes
Ca
rdiff
Wark
wo
rth
Mis
sio
n
Beach
Brig
ht
Woodfo
rd
Lis
more
Kw
inana
Mark
etp
lace
Tre
endale
Total occupancyOccupancy (%)
62%58%
56% 54%
48%45% 45%
43%
0% 0%0%
10%
20%
30%
40%
50%
60%
70%
Co
wes
Macksvill
e
Co
orp
aro
o
Ca
rdiff
Tre
endale
Mis
sio
n
Beach
Woodfo
rd
Sw
ansea
Wark
wo
rth
Brig
ht
Specialty occupancySpecialty occupancy (%)
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 20
Cowes (Neighbourhood, VIC). This asset was completed in November 2011. ~503
sqm of specialty space remains to be leased up at this asset.
Development portfolio
SCA has 13 centres currently under development presented in the table below. These assets
will add 65,161sqm of GLA to the portfolio and are scheduled to come online between
December 2012 and June 2014.
Fig 31 Asset development portfolio
Property Country / State Property Type
Completion date
Woolworths Group GLA
sqm
Specialty Tenant
GLA sqm
Total GLA sqm
Specialty GLA
Committed
Costs to date
($m)
Cost to complete
($m) Valuation
($m)
Brookwater Village Aus/QLD Neighbourhood Feb-13 4,300 2,413 6,713 92% 19.4 5.4 24.8
Cabarita Aus/NSW Neighbourhood May-13 2,652 769 3,421 0% 8.5 6.4 14.9
Fairfield heights Aus/NSW Freestanding Dec-12 3,460 342 3,802 100% 15.8 0.2 16.0
Greystanes Aus/NSW Neighbourhood Jun-14 3,000 2,559 5,559 100% 21.8 16.4 38.2
Highett Aus/VIC Neighbourhood May-13 4,336 1,472 5,808 65% 20.5 3.5 24.0
Katoomba Marketplace Aus/NSW Freestanding Dec-13 9,387 - 9,387 - 22.2 16.3 38.5
Lilydale Marketplace Aus/VIC Sub-Regional Aug-13 12,829 9,167 21,997 31% 62.3 18.2 80.5
Margaret River Aus/WA Neighbourhood Apr-13 3,824 1,950 5,774 0% 16.2 4.5 20.7
Walkerville Aus/SA Neighbourhood Apr-13 4,200 1,144 5,344 0% 11.1 8.4 19.5
Bridge Street NZ Freestanding Apr-13 4,293 - 4,293 - na 11.7 11.7
Newtown NZ Neighbourhood Dec-12 4,480 388 4,868 34% na 16.5 16.5
Stoddard Road NZ Freestanding Feb-13 4,200 - 4,200 - na 15.3 15.3
Tawa NZ Freestanding Feb-13 4,200 - 4,200 - na 11.7 11.7
Total
65,161 20,204 85,366
197.8 134.5 332.3
Source: Company data, Macquarie Research, November 2012
An analysis of the catchments for each development is provided in Fig 41 (page 28).
Rental guarantees are in place for 100% of specialty income from these centres for two years
from completion date (see page 30).
SCA acquire these properties via a „balloon‟ payment upon completion to Woolworths that
equates to the on completion value of these properties. SCA does not have the ability to earn
development profits from the development portfolio and accordingly bear no development
risk. The cost to complete the development portfolio is $134.5m as indicated in the above
table.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 21
The leases We have considered the specifics of the rental agreements by tenant across the SCA
portfolio. As indicated in the table below, despite the long lease durations for the anchor
tenants (WALE of ~19.8 years), we remain cautious on the ability of the portfolio to achieve
rental growth given proximity to turnover thresholds.
Fig 32 Key metrics for the SCA lease agreements…limited growth likely from turnover rent
Tenant Lease duration Tenant options Turnover rent?
Turnover rent payable when:
Timing of reviews
Change in rent at review Gross or net?
Woolworths supermarket
15 years - 23 years, 3 months
4 options, 10 years each Yes T/o rent % amount exceeds base rent
Every five years
New base rent is old base rent + average t/o rent paid in
preceding three years
semi-gross
Countdown supermarket (NZ)
15-20 years 3 options for 5 years each to 8 options for 5 years
each
Yes T/o exceeds specific thresholds
Every five years
New base rent is old base rent + average t/o rent paid in
preceding three years
semi-gross
Big W 15 years - 23 years, 3 months
4 options, 10 years each Yes T/o rent % amount + base rent
exceeds base rent
Every five years
As above semi-gross
Dan Murphy's 15 years - 21 years, 7 months
4 options, 10 years each Yes T/o rent % amount exceeds base rent
Every five years
As above semi-gross
Petrol stations 10 years, 7 months to 15 years, 4 months
8 options, 5 years each No n/a Annual Increase is lesser of CPI and 4%
Gross
Liquor stores 5 years, 3 months to 7 years, 2 months
10-11 options, 5 years each
No n/a No review3 n/a Gross
Masters2 22 years, 7 months 8 options, 5 years each No n/a Annual Base increase is lesser of CPI
and 3%. Review to market at start of first option and every 10
years after that.
Net
Specialties 3-5 years None No n/a Annual Mix of CPI, fixed % and market. Typically ~4%
Net
Notes: 1. T/o: Turnover. 2. The Masters lease (one deal) relates to the Mt Gambier asset. 3. Sales from liquor specialties are captured in supermarket leases. Source: Company data, Macquarie Research, November 2012
The key takeaways from the analysis of the rental agreements are:
All Woolworths entity leases commence from 1 November 2012. All Woolworths entity
leases are effective from 1 November 2012. This means that the first review on anchor
deals will not occur until 1 November 2017, despite some centres already trading for more
than one year from the Implementation Date (40 assets, or ~71% of the portfolio). This
defers earnings growth from the portfolio in our view.
The Woolworths and Dan Murphy’s leases are different to Big W. As indicated in the
table above the supermarket and Dan Murphy‟s leases pay turnover rent when the
turnover rent % exceeds base rent. In contrast, Big W pays turnover rent when the
turnover rent % and the base rent exceed the base rent. We understand that the
mathematical outcome from the two calculations is the same as:
Supermarket & Dan Murphy‟s lease deals have an occ cost target of 2.5% and
The Big W lease deals have an occ cost target of 4%.
None of the tenants are currently paying turnover rent. Despite agreements being in
place for the anchor leases (Woolworths, Countdown, Big W and Dan Murphy‟s) to pay
turnover rent, we note no anchors are currently breaching turnover rent thresholds. Whilst
not surprising given the relatively young age of the portfolio, we understand the portfolio is
not expected to begin to pay turnover rent until years three to seven.
Liquor stores have no review of base rent in isolation. The liquor stores in the portfolio
(10 stores comprising seven BWS and three Woolworths Liquor) do not have any reviews
and do not pay an annual escalation. We understand that these stores are considered part
of the supermarket in each respective centre and their sales are attributed to the
supermarket in determining turnover rent.
Supermarket, Big W and Dan Murphy’s leases are only semi-gross. We understand
Woolworths will pay for increases in outgoings relating to rates, land tax and insurance but
SCA will be liable for cleaning and security costs.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 22
SCA is liable to for the base amounts for these items. SCA is therefore exposed to non-
recoverable outgoings that are subject to increases ahead of CPI.
Petrol and liquor store leases are gross. Under these lease agreements SCA is
responsible for paying for increases in rates, land tax, insurance, cleaning and security
costs.
There are no annual escalators in the anchor leases. We understand the anchor leases
are turnover based only and do not have an annual escalator embedded in these leases.
Whilst not unusual in itself and comparable to deals with other listed land lords, given no
tenants are paying turnover rent we expect next to no growth in rents from these anchors
over the next few years.
If turnover rent is payable in one period, doesn’t mean it is in the next. If the turnover
rent threshold is breached at a centre for that year, turnover rent will be payable for that
period. If the turnover in the next year at that centre declined below the threshold,
potentially due to increased competition in the catchment for example, turnover rent would
not be payable in the next year (i.e. there is no ratchet mechanism).
37 anchor leases have a specific milestone agreement. Under 37 supermarket and Big
W leases (predominately supermarkets), base rent will increase by a minimum of 5% at
each of the three five year reviews (including if the review coincides with the start of an
option term). This represents ~47% of the anchor leases (64 supermarket, 9 Big W and 5
Dan Murphy‟s), or ~59% excluding the development portfolio.
As discussed on page 5, CQR obtained a similar escalation on four of the eight centres
they acquired from Woolworths in May 2011 as they were of the view limited growth from
anchor rent was likely without this arrangement.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 23
Other specific arrangements with Woolworths/conditions on SCA
The other key arrangements between SCA and Woolworths include:
First right of refusal. Woolworths has the first right of refusal in respect of the below six
properties in the event that SCA intends to sell them. Woolworths has 45 days to exercise
its right to acquire the property on the terms and conditions proposed by SCA.
North Orange, Katoomba Market Place, Mt Gambier Market Place, Woodford, Griffith
North, Chancellor Park Marketplace.
We understand any potential acquisition would need to occur at the price being offered by
a potential acquirer to SCA.
We understand this right was embedded on these properties as Woolworths sees them as
having strategic importance on a longer term view.
Woolworths has first right of refusal on all of the NZ assets.
There are no last rights of refusal on any assets in the portfolio.
Lease assignment. Woolworths may not assign a lease to another party without the
consent of the landlord.
Restrictions on amenity for Woolworths. The leases place restriction on SCA from
taking action that may negatively impact Woolworths‟ amenity in a centre.
Woolworths has a right to terminate a lease where the ratio of car parking to lettable
area is reduced below a specific ratio, where the number of car parks is reduced below
a specific number or where access is lost.
We understand these conditions are similar to those imposed on non SCA assets and
given the intention to maximise sales for the anchor tenant, this restriction is aligned with
maximising sales for the shopping centre.
Leasing of additional premises. Before granting or agreeing a lease to a third party
available premises in a centre, this space must first be offered to Woolworths.
In the case of a supermarket…if Woolworths accepts an offer to lease those new
premises, it must surrender its lease of its existing supermarket premises.
Pre-emptives from prior owners on three assets. Three SCA assets have a pre-emptive
right whereby the prior owner is able to acquire the centre in the instance that SCA seeks
to sell the asset. These centres are:
Treendale (WA). We understand the local party that created the overall Treendale
community wishes to maintain the right to acquire the shopping centre. This option is
perpetual but not expected to be exercised given lack of funding.
Rolleston (NZ). We understand the party with this option does not currently have the
capacity to acquire the centre. This option is „effectively‟ perpetual.
Cabarita (NSW). We understand the party with this option does not currently have the
capacity to acquire the centre. This option is perpetual.
Potential stamp duty exemption resolved. SCA sought a stamp duty exemption on the
transfer of all properties in the completed portfolio, and on the transfer of the land and WIP
of the development portfolio, located in NSW, Victoria and WA. An exemption in relation to
the transfer of those properties in the completed portfolio in WA and Victoria has been
received. To the extent that an exemption is not obtained in NSW, or a condition of an
exemption is not satisfied, then SCA may incur significant unexpected costs in the order of
up to $24m for NSW, up to $17m for Victoria and up to $8m for properties located in
Western Australia.
We understand from SCA management that these exemptions have now been obtained
and there is no potential liability.
Stamp duty is payable in Queensland and South Australia and has been provided for in the
pro-forma financials ($23.1m). This amount also includes some minor landholder duty in
Victoria.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 24
How important is turnover rent? Upon commencement, none of the anchor tenants in the SCA portfolio will be paying turnover
rent. The chart below highlights the proportion of anchor tenants paying turnover rent by retail
REIT under coverage (LHS). ~20-50% of anchor tenants are currently paying turnover rent in
these portfolios. The below chart (RHS) highlights what proportion of Australian base rent this
turnover rent represents.
Fig 33 ~20-50% of anchors pay turnover rent… Fig 34 …represents 1-4% of Australian net rent
Notes: 1. For GPT we understand the main tenants paying turnover rent are supermarkets and cinemas. 2. CRF indicated ~65% of supermarkets are paying turnover rent. 3. CFX and WRT would not disclose the proportion of anchors paying turnover rent. Source: Company data, Macquarie Research, November 2012
Notes: 1. Less than 2% for CFX. 2. Just above 1% for WRT. 3. SGP indicated Source: Company data, Macquarie Research, November 2012
Turnover rent most important for CQR. In both of the above charts it is clear that
turnover rent is important for CQR with ~50% of its anchors paying turnover rent, equating
to ~4% of Australian net rent.
Whilst the above proportions seem low at face value, we note turnover rent is the delta to be
able to achieve growth across the anchor tenants given CPI escalators are typically not in
place. For example, for FY12, CQR achieved anchor tenant sales growth of 4.3%. Anchor
rental growth for leases in turnover rent was therefore also ~4.3% as indicated in the table
below (pro-forma example of an anchor lease in turnover).
Fig 35 Example of the impact of turnover rent on rental growth
Anchor tenant lease metrics Year 1 Year 2
Turnover threshold ($m) 40 40 Sales ( $m) - growth of 4.3% in Year 2 41 42.8 Occ cost 2.5% 2.5% Base rent ($m) 1.0 1.0 Turnover rent ($m) 0.0 0.1
Total rent 1.0 1.1 Total rent growth from anchor tenant 4.3%
Source: Macquarie Research, November 2012
Given ~50% of the anchor tenants are in turnover in the CQR portfolio, this equates to ~2.2%
rental growth across the anchor tenants, if sales growth of ~4.3% is achieved.
When is turnover rent payable?
Focussing on the Australian supermarkets (lease terms discussed above on page 21),
turnover rent is payable when the turnover rent percentage amount exceeds the sum of base
rent, tenant‟s contribution to increase in outgoings and minimum service charges. This means
that once a turnover threshold amount is breached, SCA becomes entitled to a percentage of
that turnover over the predetermined threshold.
24%
40%
26%
20%
50%
0%0%
10%
20%
30%
40%
50%
60%
GPT CRF MGR SGP CQR SCA
% of anchors paying turnover rent(% of anchor tenants)
1%
2%
1%
2%
4%
0%
2%
1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
GPT CRF MGR SGP CQR SCA CFX WRT
% of Australian net rent from turnover rent(% of Australian net rent)
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 25
SCA are entitled to 2.5% of sales in excess of the threshold once a tenant is in turnover
rent for Supermarkets.
SCA are entitled to 4.0% of sales in excess of the threshold once a tenant is in turnover
rent for Big W centres.
How long can it take an anchor to hit turnover rent thresholds?
We have analysed the potential proximity of anchor tenant leases to turnover thresholds and
the likely timing of hitting turnover rent. We understand from SCA management that some
anchor tenants are anticipated to begin to pay turnover rent in years three to seven from the
Implementation Date (11 December 2012), implying anchor rent growth in CY16 and beyond.
Using a base rent of $1m in the below example and a 2.5% occupancy cost (threshold used
for supermarkets) implies a turnover threshold of $40m.
~13% sales shortfall could take ~3 years to make up. As indicated in the table below,
an anchor lease with a turnover sales threshold of $40m pa achieving current sales of
$35m could take ~3 years to achieve turnover rent in that centre.
Fig 36 An anchor ~13% below t/o thresholds could take ~3 years to get there
Per annum $m
Base rent 1.0 Turnover occupancy cost 2.5% Implied turnover threshold
1 40
Current assumed sales 35
Sales shortfall to turnover threshold ($m) -5 Sales shortfall to turnover threshold (%) -13% Implied occ cost 2.9% Assumed sales growth (pa)
2 5%
Years to hit turnover threshold 2.7 Notes: 1. $1m/2.0%. 2. Derived from wage inflation of 3.5% + population growth of 1.5%. Source: Macquarie Research, November 2012
All comes down to growth rate for catchment and initial shortfall. In the below table
we provide a sensitivity of the assumed sales growth for a centre and the initial shortfall to
the turnover rent threshold. Assuming an initial shortfall of 40% to the threshold (i.e current
turnover of $24m vs a threshold of $40m) and sales growth of 5% pa for the centre, it
would take ~10 years to reach turnover thresholds in that centre.
Fig 37 A 40% shortfall to t/o targets would take ~10 years to make up at 5% pa
Sales growth / initial shortfall (top) -60% -50% -40% -30% -20%
2% 46 35 26 18 11 3% 31 23 17 12 8 4% 23 18 13 9 6 5% 19 14 10 7 5 6% 16 12 9 6 4
Source: Macquarie Research, November 2012
Earnings growth for the portfolio in our view therefore comes down to the catchment
demographics and ability for a centre to achieve foot traffic and sales growth.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 26
Catchment analysis The ten largest centres in the SCA portfolio are estimated to account for ~39% of group NOI
as indicated in the table below. We have focussed our analysis on these centres as well as
the development portfolio given they have the most significant impact on group NOI growth in
our view.
Fig 38 Top ten assets in SCA portfolio by NOI contribution
Property State Property type GLA
(SQM)
% of portfolio
GLA
Forecast fully
leased NOI (A$M)
% of Portfolio
NOI
Kwinana Marketplace WA Sub-regional 28,139 6.7% 7.08 6.2% Lilydale Marketplace VIC Sub-regional 21,997 5.3% 6.45 5.7% Mt Gambier SA Sub-regional 27,093 6.5% 5.26 4.6% Pakenham VIC Sub-regional 17,668 4.2% 4.98 4.4% Murray Bridge SA Sub-regional 18,306 4.4% 4.79 4.2% Central Highlands QLD Sub-regional 18,855 4.5% 4.64 4.1% Greystanes NSW Neighbourhood Centre 5,559 1.3% 3.04 2.7% Katoomba Marketplace NSW Freestanding 9,387 2.3% 2.89 2.5% Lane Cove NSW Neighbourhood Centre 6,721 1.6% 2.83 2.5% Chancellor Park Marketplace QLD Neighbourhood Centre 5,203 1.2% 2.24 2.0%
Total
158,928 38.0% 44.2 39.0%
Source: Company data, Macquarie Research, November 2012
We have considered the key catchment demographics for the top ten centres and
development assets in the portfolio. The catchment size considered for each asset was
adjusted depending on the asset type as follows:
Sub-Regional – 10km radius
Neighbourhood – 5km radius
Freestanding – 5km radius
Whilst these fixed distances will not necessarily accurately define a centre‟s catchment due to
natural boundaries that may impede/encourage access to a centre, it does provide a useful
basis by which to analyse and compare catchments in a consistent manner.
Key statistics considered in each respective catchment include:
Median house/apartment price; Median household income in catchment;
Local auction clearance rate; Average household size in the catchment;
Average number of days houses listed for sale; Percentage of catchment currently paying off a mortgage;
Population in catchment; Percentage of catchment currently renting;
Average population growth for last 5 years; Median age in the catchment; and
Percentage of males/females in the catchment; Percentage of population aged 25-44 years in catchment, typical household formation age.
The catchment analysis for the top ten assets in the portfolio is presented in the below table.
Fig 39 Catchment analysis of top 10 assets in the portfolio
Asset name Asset type
1 State
Asset value ($m)
Median house
price ($)
Var to national avg (%)
House sale duration (days on
mkt)
Local auction clearance rate
(houses) – LTM2
Total pop’n in
catchment5
% males
% females
Median age
Median HH
income (monthly)
Average HH size
(persons)
% of homes owned
% of homes
with mortgage
% of homes rented
Pop’n growth
2006-2011(pa)
Kwinana Marketplace SR WA 87 318,000 -40.4% 138 50% 111,107 50.0% 50.0% 35.5 5,703 2.6 27% 43% 28% 4.1%
Lilydale Marketplace SR VIC 80.5 417,000 -21.8% 85 42% 193,436 48.9% 51.1% 37.9 5,602 2.7 34% 43% 20% 0.8% Mt Gambier SR SA 67.5 234,000 -56.1% 238 9% 21,197 52.9% 47.1% 33.8 4,629 2.2 24% 26% 47% 4.4% Pakenham SR VIC 68 357,000 -33.1% 104 47% 44,816 49.0% 51.0% 32.4 5,464 2.8 23% 48% 26% 8.2% Murray Bridge SR SA 58 231,000 -56.7% 241 11% 20,148 50.4% 49.6% 40.1 3,657 2.4 32% 30% 33% 2.9% Central Highlands SR QLD 58.5 412,000 -22.8% 107 SNR
3 13,884 52.2% 47.8% 29.0 9,979 2.9 15% 41% 42% 2.2%
Greystanes N NSW 38.2 471,000 -11.7% 85 51% 311,997 49.9% 50.1% 33.1 5,083 2.9 27% 32% 38% 2.0% Katoomba Marketplace FS NSW 38.5 390,000 -26.9% 137 44% 20,623 48.4% 51.6% 41.3 5,317 2.2 30% 31% 35% 0.8% Lane Cove N NSW 38.3 1,241,000 132.6% 75 81% 276,070 48.1% 51.9% 37.6 9,158 2.4 32% 30% 36% 1.3% Chancellor Park Marketplace N QLD 25.6 437,000 -18.1% 204 29% 44,032 47.3% 52.7% 40.6 5,095 2.6 33% 38% 22% 2.5% Total/average
4 411,588 141 35% 1,057,310 49.2% 50.8% 35.9 5,904 2.6 27.0% 37.3% 32.3% 2.2%
National total/average 533,480 104 52% 49.4% 50.6% 37.5 5,663 2.6 32.1% 34.9% 29.6% 1.7% Positive indicator for asset: Negative indicator for asset:
Notes: 1. SR: Sub-regional. N: Neighbourhood. FS: Freestanding. 2. LTM: Last twelve months. Days house is on market is also average for the last 12 months. 3. SNR: Statistically not reliable. 4. Weighted by shopping centre asset value or population. 5. Our catchment population estimate has not considered local situations that may impede access to a centre.
Source: APM, Census, ABS, Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 27
Key takeaways from the analysis include:
Kwinana Marketplace (Sub-regional asset - WA). This asset has ~111,000 people within
~10km of the centre. It appears to be a „mortgage belt‟ region with 43% of homes having a
mortgage compared to the national average at 35%. The strong population growth in the
region from 2006 to 2011 (average ~4% pa) off a low base indicates this is an emerging
economic region.
Lilydale Marketplace (Sub-regional asset - VIC). This asset has ~193,000 people within
~10km of the centre. This appears to be a more mature catchment with population growth
from 2006-2011 of less than ~1% pa. This asset is currently part of the development
portfolio and despite being due to open in August 2013, only 31% of the specialty space
(total of ~9,167 sqm) has been pre-committed. We understand an Aldi is being added to
the centre.
Mt Gambier (Sub-regional asset - SA). Only ~22,000 people are located within ~10km of
this asset. This also appears to be a less affluent area with the median house price of
$234,000 ~56% below the national average of $533,480. The average days on market for
house sales at 238 also indicates potentially sluggish economic conditions for this region
(auction clearance rate is 9%). This asset also includes the only Master‟s Hardware store
in the portfolio. We anticipate leasing conditions in this centre to be difficult.
Pakenham (Sub-regional asset - VIC). ~45,000 people are located within ~10km of this
catchment. The median age in this catchment of 32.4 years is well below the national
average of 37.5 and indicative of increased family formation in future years in our view. In
addition, the average household size of 2.8 persons is above the national average of 2.6
and also bodes well for non-discretionary supermarket sales in this region.
Murray Bridge (Sub-regional asset - SA). This looks to be a relatively unattractive
catchment for a shopping centre given the higher median age in the catchment (40.1 years
vs the national average of 37.5 years), weak residential market (11% auction clearance
rate) and smaller average household size at 2.4 people per household compared to the
national average of 2.8. We anticipate leasing conditions in this centre to be difficult.
Central Highlands (Sub-regional asset - QLD). This asset has exposure to a small
catchment with only 13,884 people within 10km of the asset. This is very low for a sub-
regional shopping centre in our view. The low percentage of females in the catchment is
also of concern (47.8% vs national average of 50.6%) given females are typically the
primary shopper for a household as they acquire items for personal use but also for other
family members. Despite this, the average household income of $9,979 per month is well
above the national average. We attribute this to the relatively high mining workforce in this
catchment.
Katoomba Marketplace (Freestanding asset - NSW). The total population in the
catchment surrounding this freestanding asset is 20,623 people. The median age is quite
high at 41.3 years (national average 37.5 years) and the population growth has been
modest relative to other catchments at less than ~1%pa from 2006 to 2011. The average
household size is also below the national average at 2.2 people.
Lane Cove (Neighbourhood asset - NSW). This is the most affluent catchment
considered with the median house price 1.3x the national average. Auction clearance rates
and average sale duration are also favourable. It is a more mature catchment however with
average population growth from 2006-2011 of only 1.3% pa. Competition is likely to be
more intense in this metro-infill site.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 28
Catchment analysis of Australian development portfolio
We also completed a catchment analysis for the nine Australian assets in the development
portfolio (an additional four are located in NZ). The development portfolio including the
specialty space committed is presented in the table below.
Fig 40 Asset development portfolio
Property Country / State Property Type
Completion date
Woolworths Group GLA
sqm
Specialty Tenant
GLA sqm
Total GLA sqm
Specialty GLA
Committed
Costs to date
($m)
Cost to complete
($m) Valuation
($m)
Brookwater Village Aus/QLD Neighbourhood Feb-13 4,300 2,413 6,713 92% 19.4 5.4 24.8
Cabarita Aus/NSW Neighbourhood May-13 2,652 769 3,421 0% 8.5 6.4 14.9
Fairfield heights Aus/NSW Freestanding Dec-12 3,460 342 3,802 100% 15.8 0.2 16.0
Greystanes1 Aus/NSW Neighbourhood Jun-14 3,000 2,559 5,559 100% 21.8 16.4 38.2
Highett Aus/VIC Neighbourhood May-13 4,336 1,472 5,808 65% 20.5 3.5 24.0
Katoomba Marketplace1 Aus/NSW Freestanding Dec-13 9,387 - 9,387 - 22.2 16.3 38.5
Lilydale Marketplace1 Aus/VIC Sub-Regional Aug-13 12,829 9,167 21,997 31% 62.3 18.2 80.5
Margaret River Aus/WA Neighbourhood Apr-13 3,824 1,950 5,774 0% 16.2 4.5 20.7
Walkerville Aus/SA Neighbourhood Apr-13 4,200 1,144 5,344 0% 11.1 8.4 19.5
Bridge Street NZ Freestanding Apr-13 4,293 - 4,293 - na 11.7 11.7
Newtown NZ Neighbourhood Dec-12 4,480 388 4,868 34% na 16.5 16.5
Stoddard Road NZ Freestanding Feb-13 4,200 - 4,200 - na 15.3 15.3
Tawa NZ Freestanding Feb-13 4,200 - 4,200 - na 11.7 11.7
Total
65,161 20,204 85,366
197.8 134.5 332.3
Notes: 1. Greystanes, Katoomba Marketplace and Lilydale Marketplace are in both the development portfolio and top 10 assets by NOI. Source: Company data, Macquarie Research, November 2012
Greystanes, Katoomba Marketplace and Lilydale Marketplace are in the development
portfolio and are also estimated to be in the top 10 assets on a fully leased basis (discussed
above).
Fig 41 Catchment analysis of nine Australian assets in the development portfolio
Asset name Asset type
1 State
Asset value ($m)
Median house
price ($)
Var to national avg (%)
House sale duration (days on
mkt)
Local auction clearance rate
(houses) – LTM2
Total pop’n in
catchment5
% males
% females
Median age
Median HH
income (monthly)
Average HH size
(persons)
% of homes owned
% of homes
with mortgage
% of homes rented
Pop’n growth
2006-2011(pa)
Cabarita N NSW 14.9 410,000 -23.1% 236 25% 38,661 48.8% 51.2% 42.9 3,833 2.4 38% 29% 30% 2.1% Fairfield Heights FS NSW 16 430,000 -19.4% 91 52% 320,004 49.4% 50.6% 34.8 4,785 3.0 31% 32% 34% 1.5% Greystanes N NSW 38.2 471,000 -11.7% 85 51% 311,997 49.9% 50.1% 33.1 5,083 2.9 27% 32% 38% 2.0% Katoomba Marketplace FS NSW 38.5 390,000 -26.9% 137 44% 20,623 48.4% 51.6% 41.3 5,317 2.2 30% 31% 35% 0.8% Brookwater Village N QLD 24.8 295,000 -44.7% 156 32% 137,303 50.4% 49.6% 32.3 5,772 2.9 23% 40% 35% 4.5% Walkerville N SA 19.5 690,000 29.3% 137 32% 229,076 49.3% 50.7% 37.5 4,783 2.3 30% 28% 38% 1.5% Highett N VIC 24 1,050,000 96.8% 85 55% 173,380 48.2% 51.8% 41.0 7,059 2.6 40% 33% 23% 0.9% Lilydale Marketplace SR VIC 80.5 417,000 -21.8% 85 42% 193,436 48.9% 51.1% 37.9 5,602 2.7 34% 43% 20% 0.8% Margaret River N WA 20.7 440,000 -17.5% 328 SNR 7,526 49.8% 50.2% 36.0 5,209 2.6 26% 36% 35% 2.5%
Total/average
4 485,903 129 40% 1,432,006 49.4% 50.6% 36.1 5,403 2.7 31% 36% 30% 1.7%
National total/average 533,480 104 52% 49.4% 50.6% 37.5 5,663 2.6 32% 35% 30% 1.7% Positive indicator for development: Negative indicator for development:
Notes: 1. SR: Sub-regional. N: Neighbourhood. FS: Freestanding. 2. LTM: Last twelve months. Days house is on market is also average for the last 12 months. 3. SNR: Statistically not reliable. 4. Weighted by shopping centre asset value or population. 5. Our catchment population estimate has not considered local situations that may impede access to a centre.
Source: APM, Census, ABS, Company data, Macquarie Research, November 2012
Key takeaways from the analysis of the catchments for the development assets include:
Cabarita (Neighbourhood asset - NSW). Residential conditions look to be sluggish in this
catchment (northern NSW) with house sale duration at 236 days compared to the national
average at 129. The median age at 42.9 is also above the national average of 37.5 years
indicating it may be a more mature catchment with limited growth. Despite the asset
estimated to come online in May 2013, none of the specialty space (~769 sqm) is pre-
committed. However we note this region is typically a holiday destination and thus traveller
numbers are important. We assume specialty occupancy upon opening of 50% in our
forecasts.
Fairfield Heights (Freestanding asset - NSW). This asset is being added to a relatively
young catchment (34.8 years compared to national average of 37.5 years) with a large
average household size of 3.0 people per household (national average 2.6). This bodes
well for non-discretionary retail sales in this area in our view. Encouragingly, the specialty
area at the site is 100% pre-committed.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 29
Greystanes (Neighbourhood asset - NSW). The median age in this catchment of 33.1
years is a positive indicator for the development in our view. There is also a large
population in the catchment albeit there is more competition in this metro-infill site. We
understand Franklin‟s vacated the premises upon lease expiry and a bigger Woolworths is
being developed at the site.
Brookwater Village (Neighbourhood asset – QLD). This asset is to be located in a
relatively young catchment (32.3 years median age). Population growth from 2006-2011
averaged 4.5% pa which is indicative of an immature and growing catchment. 92% of the
specialty area at this site has been pre-committed. This centre is located near the
Springfield Lakes residential development which is expected to have a train station
constructed in the next ~12 months which will improve access to Brisbane.
Walkerville (Neighbourhood asset – SA). Despite the relatively high amount of people in
the catchment we note the population growth has been more modest compared to the
other development sites. Despite the asset due to open in April 2013, we note no specialty
space (~1,144 sqm available) has been pre-committed.
Highett (Neighbourhood asset – VIC). This is an affluent catchment with average house
prices of $1.05m, nearly double the national average. The median age of 41 years and
average population growth from 2006-2011 (less than ~1% pa) however indicates that it is
likely a mature catchment with limited growth. The specialty area at this site is 65% pre-
committed (1,472 sqm total specialty space at centre).
Margaret River (Neighbourhood asset – WA). There are only ~7,526 people within 5km
of this asset. In addition, the local residential auction market looks weak with house sale
duration at 328 days. Despite the asset opening in April next year none of the specialty
space (~1,950 sqm) has been pre-committed. We understand the council required street
facing shops at this site which are anticipated to be more difficult to lease (two stores).
Newtown (Neighbourhood asset – NZ). Whilst not explicitly considered in our catchment
analysis which is based on Australian data, we note only ~34% of the specialty space at
this NZ asset has been pre-committed with the centre due to open next month (total of 388
sqm specialty space at this site).
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 30
The rental guarantees…mind the detail We have considered the specifics of the rental guarantees in place for the completed portfolio
(56 assets) and also the development portfolio (13 assets). The rental guarantees on the
completed portfolio are for two years from the implementation date (11 December 2012) and
for the development portfolio, two years from development completion (i.e a staggered roll of
as developed assets come online). They only apply to specialty income in both portfolios.
Rental guarantees for the completed portfolio
Only for vacancies as at 11 December 2012. The rental guarantees only apply to vacant
specialty space as at 11 December 2012. If a specialty tenant leaves a centre from 12
December 2012 onwards, it is SCA‟s responsibility to replace this lost rent and no
guarantee is provided from Woolworths. Given the relatively young age of the portfolio, this
shouldn‟t be a significant issue given specialty tenants on balance are still in the early
stages of their leases (specialty WALE: 4 years) but it is a risk borne by SCA.
Only until the property is first let. The rental guarantees only apply until the vacant
space is first let. If a retailer enters a centre and then faces financial difficulty and enters
administration for example, Woolworths has no obligation to find another tenant and this is
again borne by SCA.
Guarantees do not attract the annual escalator. The rental guarantees do not attract the
3-4% escalator embedded in a typical specialty lease for the portfolio.
How is the amount of the rental guarantee determined? We understand the amount of
specialty rent payable under the rental guarantees has been determined by an
independent valuer.
What happens where the rental guarantee and incoming tenant rent differ? In the
event that the rent payable by an incoming tenant for a previously vacant site (guaranteed
by Woolworths) is below the rental guarantee, Woolworths is not obliged to make up the
difference and SCA is not obliged to sign up the incoming tenant. SCA can therefore
choose to leave the space vacant and continue to receive the higher rent guarantee
amount or make the commercial decision to accept the tenant to improve the specialty
occupancy of that centre.
Covers tenant incentives and leasing commissions. The rental guarantees also cover
tenant incentives and leasing commissions on the vacant space.
No link between rent and overall centre occupancy. We understand there is no link
between either anchor or specialty rent and the overall occupancy of a centre. SCA has
not „guaranteed‟ a level of specialty occupancy to incoming tenants and rent levels are
therefore not contingent on specialty occupancy targets.
Rental guarantees for development portfolio
How have the rental guarantees in the development portfolio been determined
particularly considering these sites have never been leased before? Again, we
understand that the specialty rent is determined by an independent valuer.
Many assumptions required for development portfolio. Given the development
portfolio comprises new assets that have not previously traded there is a significant
amount of forecast risk in terms of sales for the centre, specialty occupancy and level of
specialty rents. Replacing the lost income from rental guarantees is likely to prove difficult
in some centres in our view.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 31
Financial forecasts We are forecasting FY14 distributable earnings of ~$69.1m for SCA, slightly ahead of the
PDS ($68.8m) largely due to our assumed strengthening of the NZD relative to the AUD.
Given rental guarantees are in place (discussed on page 30) for the first two years from
Implementation Date (11 December 2012) for the completed portfolio and two years from
development completion for the development portfolio (i.e. staggered roll off), we are more
interested in growth in FY15 and beyond. A summary of our projected income statement is
provided in the table below. We note all our financial forecasts assume the equity raising is
completed and would differ if it does not proceed.
Fig 42 SCA forecast income statement…~1% distributable earnings growth in FY16
FY13F FY14F FY15F FY16F FY17F
Woolworths gross revenue $m 42.7 87.9 91.3 91.1 91.5 Specialty gross revenue $m 22.2 47.7 53.2 55.8 57.8 Rental straight lining $m 3.8 10.8 10.8 10.8 10.8 Site access fee $m 6.4 2.7 - - - Other income $m 0.1 0.9 - - -
Total gross income $m 75.2 149.9 155.3 157.7 160.1 Property operating expenses $m (15.7) (32.4) (33.2) (33.0) (33.6) Corporate costs $m (6.6) (12.8) (12.2) (11.3) (11.4)
EBIT $m 52.9 104.8 110.0 113.4 115.1 Amortisation of lease incentives & commissions $m - (0.8) (0.8) (0.8) (0.8) Net interest expense $m (12.6) (26.0) (26.6) (26.7) (27.5)
Net income before tax $m 40.3 77.9 82.6 85.9 86.8 Income tax expense $m (1.3) (2.3) (2.4) (2.5) (2.6)
Underlying earnings (MRE definition) $m 39.0 75.6 80.2 83.4 84.3 Distributable earnings (SCA definition) $m 38.3 69.1 72.0 72.6 73.5 Operating EPS (MRE definition) 6.7 12.9 13.7 14.3 14.4 Growth % nm 6.0% 4.0% 1.1% Distributable earnings ps (SCA definition) cps 6.6 11.8 12.3 12.4 12.6 Growth % nm 4.2% 0.8% 1.2% DPS cps 5.6 10.4 10.8 11.2 11.4 Growth % nm 4.2% 3.1% 2.4% DPS as % of distributable earnings % 86% 88% 88% 90% 91% FCF per security cps 6.6 12.0 12.3 11.7 11.8 Growth % nm 2.1% (4.5%) 1.1%
Notes: 1. FY13F is for the period from 11 December 2012 to 30 June 2013. 2. nm: not meaningful. Source: Macquarie Research, November 2012
At a high level, limited growth from Woolworths leases prior to hitting turnover thresholds is
supplemented by the site access fee and cash impact of rental guarantees in initial years as
the specialty occupancy begins to improve in the portfolio. Post specialty lease up beyond
FY16, modest EPS growth is possible of ~2-3%, largely reflecting annual escalators in the
specialty leases (~39% of income at +4% pa) with turnover rent to contribute in outer years.
The key components of the income statement are as follows.
Woolworths gross revenue. We forecast Woolworths gross revenue (including
development income) of $91.3m in FY15 (+3.9%y-y). This growth is driven by full year
contribution of the development portfolio. Excluding this, growth is effectively flat due to no
turnover rent being achieved on these leases. We have modelled turnover rent from years
three to seven with a 5% uplift for 37 anchor tenant leases upon first review in FY18 as
discussed on page 21.
Specialty gross revenue. We forecast specialty gross revenue (including development
income) of $53.2m in FY15 (+12% y-y). This growth is driven by the annualisation of
developments coming online, fixed escalators of ~4% in the portfolio and the progressive
lease-up of specialty space.
Rental straight lining. This is an IFRS adjustment required by accounting standards to
smooth the rental growth profile. It has been applied to both anchor and specialty leases.
We have carried this estimate forward to outer years and is included in our „underlying
earnings‟ forecast but not our „distributable earnings‟ forecasts.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 32
Site access fee. The site access fee is a payment from Woolworths to SCA relating to the
development management agreements (DMAs). This has been setup to minimise the
stamp duty liability for SCA. It is minimised as stamp duty is payable on the lower land and
WIP value as opposed to the end completion value for the asset. The coupon receivable
by SCA from Woolworths is calculated by multiplying the completion cap rate by the land
and WIP value for the specific development. We forecast this fee to cease in FY14 when
the final development is scheduled for completion (Greystanes in NSW, June 2014).
Other income. Other income comprises the net P&L impact of the unwind of the financial
asset in relation to the rent guarantee. We assume this amount ceases in FY15.
Property operating expenses. This item comprises outgoings for the trust including
normal centre operating costs such as utilities, security, cleaning and insurance. Whilst the
anchor leases are semi-gross, exposing SCA to non-recoverable outgoings including
increases in security and cleanings costs, we do not expect this to have a material impact
on earnings in the near term.
Corporate costs. Corporate costs comprise general overheads including salaries and
wages for 13 permanent staff and legal and administrative costs. We understand ~$3.2m
of the ~$12.8m FY14 figure relates to share registry costs. This large quantum is due to
the initial SCA register expected to have ~420,000 individual shareholders as a result of
the in-specie distribution. With a „mop up‟ expected to be completed in the next 6-12
months and the register anticipated to change to a more institutional holding longer term,
we assume ~$0.6m in corporate cost savings in each of FY15 and FY16. As an example
we understand sending out the Explanatory Memorandum (EM) for this transaction to
Woolworths shareholders cost ~$2m in isolation.
There are currently three asset managers in the business which we understand can
manage 20-25 assets each (i.e. cover the current portfolio). An additional asset manager
will be required when the group acquires a further 10-15 centres. Given we currently
assume no further acquisitions in the portfolio, we do not forecast an increase on this cost
item ahead of CPI.
Net interest expense. Our net interest expense increases modestly to ~$26.6m in FY15
largely reflecting the annualisation of the higher debt balance with the development
portfolio completing in FY14. At the Allotment Date, ~90% of the debt balance will be fixed
at a base rate of 3.5%. We assume an all-in weighted average cost of debt of ~5.7% in our
forecasts.
The group will also establish a NZD denominated debt facility equivalent to 60% of the
value of the New Zealand portfolio.
We estimate a 10bps cost of debt saving to equate to a ~0.5% increase in operating
earnings. The group will target ~50-100% of drawn borrowings to be hedged at a fixed
interest rate.
Income tax expense. Income tax is payable on the NZ earnings at a tax rate of 28%. At a
group level, the effective tax rate is ~3%. We have applied this to earnings in financial
years FY15 and beyond.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 33
Underlying earnings vs distributable earnings
The below table highlights the key adjustments from our definition of underlying earnings to
SCA‟s „distributable‟ earnings. We are slightly above the FY14 distributable earnings in the
PDS largely due to our assumed strengthening of the NZD relative to the AUD.
Fig 43 Key adjustments to arrive at distributable earnings
FY13F FY14F FY15F FY16F FY17F
Underlying earnings $m 39.0 75.6 80.2 83.4 84.3 Rental guarantees - Completed portfolio $m 3.6 4.6 1.6 - - Rental guarantees - Development portfolio $m 0.3 2.0 1.8 - - Straight lining of rental income $m (3.8) (10.8) (10.8) (10.8) (10.8) Other non-cash items $m (0.1) (0.9) - - - Structural vacancy allowance $m (0.7) (1.5) (0.8) - -
Distributable earnings $m 38.3 69.1 72.0 72.6 73.5
Source: Macquarie Research, November 2012
The key adjustments to arrive at distributable earnings are:
Rent guarantees. We estimate rent guarantees to cease post FY15 which will be two
years after the scheduled completion of the development assets. Greystanes is scheduled
for a June 2014 completion which would imply a rental guarantee until June 2016 but the
specialty space in this asset is already 100% pre-committed.
Straight lining of rental income. We remove this item in determining distributable
earnings given it is non-cash in nature.
Other non-cash items. This comprises the P&L impact of the unwind of the rental
guarantees and again is a non-cash item.
Structural vacancy allowance. The $1.5m structural vacancy allowance equates to
specialty vacancy of ~3-4% and unwinds inline with the rental guarantees. Given we
assume specialty occupancy of ~93% upon rental guarantee roll off on the completed
portfolio (see table below), this is the primary driver of our modest distributable earnings
growth in FY16.
Fig 44 We assume the specialty portfolio is ~95% leased at June 2016
Specialty occupancy Allotment
date Jun-13 Jun-14 Jun-15 Jun-16
Aus - sub-regional 85% 93% 97% 98% 98% Aus - neighbourhood 75% 81% 85% 88% 91% NZ - neighbourhood 81% 84% 89% 92% 97%
Weighted average1 80% 87% 91% 93% 95%
Notes: 1. Weighted by specialty area. 2. Completed portfolio only. Source: Macquarie Research, November 2012
Given ~55% of the completed portfolio income is derived from Woolworths we estimate
every 1% change in specialty occupancy to drive a ~0.5% increase in property income.
The below chart highlights the total and specialty occupancy for comparable REITs under
coverage. Given the SCA portfolio is in a sales maturation phase in emerging catchments
we believe specialty occupancy of ~95% by June 2016 is appropriate.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 34
Fig 45 Specialty occupancy 95.2% for most comparable REIT, CQR
Notes: 1. Represents the Australian portfolio only for CQR. Source: Company data, Macquarie Research, November 2012
The below chart highlights our distributable earnings growth drivers from FY14 to FY15. We
have considered distributable earnings for the purpose of this analysis as it better highlights
the relationship between specialty lease-up, rental guarantees rolling off and the change in
unwind of the structural vacancy provision.
Fig 46 Developments & specialty lease-up drive FY15 earnings growth
Source: Macquarie Research, November 2012
98.6%99.2% 99.1%
95.2%
97.3%
99.5%
97.7%
99.0%
90%
91%
92%
93%
94%
95%
96%
97%
98%
99%
100%
CQR MGR CRF Average
Total occupancy Specialty occupancy
69.1
3.4
5.6
1.2
72.0
(3.2)
(2.7)
(0.5) (0.8)
60
62
64
66
68
70
72
74
76
78
80
FY
14
dis
trib
uta
ble
earn
ings
(MR
E)
∆ in
Woolw
ort
hs
gro
ss r
evenue
∆ in s
pecia
lty
gro
ss r
evenue
∆ in s
ite a
ccess
fee
∆ in r
enta
l
guara
nte
es
∆ in p
ropert
y
opera
ting
expenses
∆ in n
et in
tere
st
expense
∆ in o
ther
item
s
FY
15
dis
trib
uta
ble
earn
ings
(MR
E)
(A$m)
Development driven
Development driven, with
specialty lease up and ~4%
escalators
Ceases
in FY15
Progressive rolloff
Change inline with
rent Full period impact
of higher debt
balance from
developments
Unwind of structural
vacancy provision and
corporate cost savings
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 35
The below chart highlights our distributable earnings growth drivers from FY15 to FY16.
Fig 47 Cessation of rent guarantees is offset by lease-up and cost out in FY16
Source: Macquarie Research, November 2012
For completeness we also present the key items driving our underlying earnings forecast from
FY14 to FY15.
Fig 48 Developments & specialty lease-up drive FY15 earnings growth
Source: Macquarie Research, November 2012
72.0
2.6
1.5
72.6
0.2 (3.4)
(0.1) (0.2)
60
62
64
66
68
70
72
74
76
78
80
FY
15
dis
trib
uta
ble
earn
ings (
MR
E)
∆ in
Woolw
ort
hs
gro
ss r
evenue
∆ in s
pecia
lty
gro
ss r
evenue
∆ in r
enta
l
guara
nte
es
∆ in p
ropert
y
opera
ting
expenses
∆ in n
et in
tere
st
expense
∆ in o
ther
item
s
FY
16
dis
trib
uta
ble
earn
ings (
MR
E)
(A$m)
No underlying growth, slight
decline reflecting
weakening NZD
Specialty lease-up and ~4%
escalators
Cessation of rental
guarantees
Vacancy related
Unwind of structural
vacancy provision and
corporate cost savings
Cost of debt increases with
hedged component
declining offset by debt
reduction
75.6
3.4
5.6
80.2
0.5 (0.5) (0.8)
(0.9) (2.7)
60
65
70
75
80
85
FY
14
underlyin
g
earn
ings
(MR
E)
∆ in
Woolw
ort
hs
gro
ss r
evenue
∆ in s
pecia
lty
gro
ss r
evenue
∆ in s
ite a
ccess
fee
∆ in o
ther
incom
e
∆ in p
ropert
y
opera
ting
expenses
∆ in n
et in
tere
st
expense
∆ in o
ther
item
s
FY
15
underlyin
g
earn
ings
(MR
E)
(A$m)
Development driven
Development driven, with
specialty lease up and ~4%
escalators
Ceases
in FY15
P&L impact of rent guarantees
Change inline with
rent
Full period impact
of higher debt
balance from
developments
Largely corporate cost savings
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 36
The below chart highlights our underlying earnings growth drivers from FY15 to FY16.
Fig 49 Specialty lease-up and cost out drives underlying earnings growth in FY16
Source: Macquarie Research, November 2012
80.2
2.6
83.4
0.2 0.7 (0.1)
(0.2)
60
65
70
75
80
85
90
FY
15
un
de
rlyin
g
ea
rnin
gs
(MR
E)
∆ in
Wo
olw
ort
hs
gro
ss r
eve
nu
e
∆ in
sp
ecia
lty
gro
ss r
eve
nu
e
∆ in
pro
pe
rty
op
era
tin
g
exp
en
se
s
∆ in
ne
t in
tere
st
exp
en
se
∆ in
oth
er
ite
ms
FY
16
un
de
rlyin
g
ea
rnin
gs
(MR
E)
(A$m)
No underlying growth, slight
decline reflecting weakening
NZD
Specialty lease-up and ~4%
escalators
Laregly corporate cost savings
Cost of debt increases with
hedged component declining
offset by debt reduction
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 37
Cash flow allows DPS growth ahead of earnings
Below we present our free cash forecast for SCA. At a high level, rental guarantees rolling off
are supplemented by lease-up in the specialty portfolio although we forecast specialty
occupancy post roll off to still be below the structural vacancy allowance provided for by SCA
in FY14.
Fig 50 Free cash flow forecast
FY13E FY14E FY15E FY16E FY17E
Property rental revenue $m 71.3 138.2 144.5 146.9 149.3 Change in net working capital $m - - - - - Rental guarantees $m 3.9 6.6 3.4 - - Operating expenses $m (22.3) (45.2) (45.3) (44.3) (45.0) Non-recurring cash flows $m - - - - -
Cash EBIT $m 52.9 99.7 102.6 102.6 104.3 Net interest paid $m (12.6) (26.0) (26.6) (26.7) (27.5) Tax paid $m (1.3) (2.3) (2.4) (2.5) (2.6) Change in net working capital & other $m - - - - - Operating cash flow $m 39.0 71.4 73.6 73.4 74.3 Maintenance capex & tenant incentives $m (0.6) (1.2) (2.0) (5.0) (5.1)
Free cash flow $m 38.4 70.2 71.6 68.4 69.1 EFPOWA m 584.2 584.2 584.2 584.2 584.2 FCF per security cps 6.6 12.0 12.3 11.7 11.8 DPS cps 5.6 10.4 10.8 11.2 11.4 FCF coverage of distribution % 116.5% 115.4% 113.1% 104.9% 103.7%
Source: Macquarie Research, November 2012
Key items in our free cash forecast for the group includes:
Rental guarantee roll off. The rental guarantees rolling off in FY15 and FY16 are slightly
offset by assumed lease-up in the specialty portfolio (discussed above) albeit we assume
specialty occupancy below that of the structural vacancy provision in FY14.
Net interest paid increases. Our net interest paid increases in FY15 (~$0.6m) largely
reflecting the annualisation of a higher average debt balance from development
completions in FY14.
Maintenance capex low initially. Maintenance capex is only ~8bps of gross assets
initially. We assume ~30bps for other retail REITs under coverage. Given the relatively
young age of the portfolio at ~2.1 years with 16 completed assets (~29% of total) less than
one year old we do not forecast this to increase until FY16 (20bps forecast).
We understand that the typical refurbishment cycle for the anchor tenants is seven years
for a supermarket and 10 years for a Big W.
Tenant incentives. Post rental guarantees (which also cover tenant incentives) we
assume ~15% incentives (of gross rental income) on new specialty deals.
In FY16 and beyond we anticipate the free cash coverage to decline slightly given we assume
the dividend payout ratio increases to 90% in FY16 (target payout: 85-95%) and 91% in FY17
to ensure DPS growth with our ~1% distributable earnings growth assumption in FY16.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 38
Balance sheet
The below table highlights the balance sheet for SCA at the allotment date and on a fully
invested basis. The group has an NTA of $1.58 ps.
Fig 51 SCA balance sheet at allotment date and on a fully invested basis
($m) At allotment date At allotment date on a
fully invested basis
Assets Current Assets Cash 5 5 GST receivable 2 2 Rental Guarantee 9.3 9.3
Current Assets 16.3 16.3 Non Current Assets Investment property - completed 1,056.3 1,388.6 Investment property under construction 197.8 - Rental Guarantee 8.5 8.5
Non Current Assets 1,262.6 1,397.1 Total Assets 1,278.9 1,413.4 Liabilities Current liabilities - - Non Current liabilities Long-term debt 355.3 489.8 Non Current liabilities 355.3 489.8 Total Liabilities 355.3 489.8 Net assets 923.6 923.6
Equity Equity 960.9 960.9 Accumulated losses -37.3 -37.3 Total equity 923.6 923.6 Number of Stapled Units (millions) 584.2 584.2 NTA per Stapled Unit ($) 1.58 1.58 Gearing
1 27.4% 34.3%
Notes: 1. Net Debt/Tangible assets including rental guarantees. Source: Company data, Macquarie Research, November 2012
Gearing increases to ~34% on a fully invested basis. Factoring the incremental ~$134.5m
spend to complete the 13 asset development portfolio, group gearing increases to 34.3%.
The group has a target gearing range longer term of 25-40%. We understand the gearing
covenant in the debt facility is expected to be 50% (net debt to total tangible assets) with an
EBIT coverage covenant of 2.0x. We estimate the group to be ~4.0x covered initially.
Given the group will be to the upper end of their gearing range initially we note it has limited
capacity for asset acquisitions in the near term.
The amount raised under the offer does not impact gearing. As indicated in the below
figure, the amount of the equity raise does not impact group gearing.
If for example the offer is priced at the bottom end of the range ($1.26), the lower offer
proceeds ($425m) will be offset by an increase in the contributed equity from the distribution.
Fig 52 Sources & uses of capital if priced at the bottom end of the range ($1.26)
Source Use
Contributed equity 557 Completed portfolio 1,074 Partial drawdown of Debt Facility 358 Land and WIP of development portfolio 198 Offer proceeds 425 Estimated transaction costs (including stamp duty and
excluding Offer management costs) 48
Offer management costs 15 Working capital 5
Total 1,340 Total 1,340
Source: Company data, Macquarie Research, November 2012
As indicated in the below table, the partial drawdown of the debt facility remains unchanged if
the final price of the offer is at the high end as the offer proceeds and contributed equity are
adjusted.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 39
Fig 53 Sources & uses of capital if priced at the top end of the range ($1.50)
Source Use
Contributed equity 476 Completed portfolio 1,074 Partial drawdown of Debt Facility 358 Land and WIP of development portfolio 198
Offer proceeds 506 Estimated transaction costs (including stamp duty and excluding Offer management costs)
48
Offer management costs 15 Working capital 5
Total 1,340 Total 1,340
Source: Company data, Macquarie Research, November 2012
Under both scenarios the total equity recoupable by Woolworths holders is the same. At the
low end, the reduced proceeds from the offer is offset by increased consideration from the in-
specie and vice versa.
What happens if there is no equity raise?
We understand that if the offer does not proceed (in isolation), Woolworths will receive
consideration of ~$301m which represents partial consideration for the assets (net of
transaction costs). The capital distribution will still occur for ~247m securities. The NTA on
this basis for the revised arrangement would be ~$3.74 ps. This is calculated as the net
assets of $923.6m divided by the shares associated with the capital distribution of 247m.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 40
Other key considerations for SCA Below we highlight a couple of other key issues to consider for SCA.
Takeover candidate longer term?
As part of the proposal Woolworths is not participating in the equity raise and will not have a
stake in SCA. In addition, Woolworths will have no involvement in managing SCA once the
transitional service arrangements (TSAs) roll off 12 months from the Implementation Date (11
December 2012). We are surprised that the group has taken this path, as it could result in a
change in control of SCA longer term.
Given the leases are comparable to those arranged with the other listed REITs the
implications for Woolworths from a change in control are likely limited. Despite this, we
note that an acquiring party could view competitors to Woolworths more favourably and
there is no guarantee that leases would be renewed to Woolworths upon expiry.
We understand in the event of a takeover of SCA, Woolworths would still have the right to
acquire the six sites which it has a pre-emptive over given these arrangements are at the
lease level (see page 23).
We view the probability of a takeover of SCA as low in the near to medium term.
In need of a permanent CEO
As part of the TSAs ($3.7m cost to SCA), Anthony Mellowes has been installed as interim
CEO. His role in this capacity is for a period of up to 12 months. Post the Allotment date, the
board will undertake an executive search to fill the role of CEO on a permanent basis.
Anthony Mellowes will be able to participate in this process at his own election.
No Development profits for SCA
Under the development management agreements (DMA) between Woolworths and SCA,
SCA pays Woolworths the estimated end value of the asset when construction is complete.
SCA therefore does not have the capacity to create development profits which most REITs
under coverage are able to do. This further inhibits earnings growth and value creation for
SCA in our view.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 41
An overview of the offer & capital distribution On 5 October 2012 Woolworths (WOW.ASX) announced intentions to create SCA via an in-
specie distribution to existing WOW shareholders (1 SCA for 5 WOW) and a related offer (the
offer) of 337.3m Stapled Units in SCA to raise $425-506m to partially fund the acquisition of
the portfolio. A resolution to approve the distribution via a capital reduction will be put to
Woolworths shareholders at its AGM on 22 November 2012.
As indicated in the chart below, ~58% of SCA‟s equity base will come from the offer.
Fig 54 ~58% of SCA’s equity base will come from the offer (~42% from in-specie)
Source: Company data, Macquarie Research, November 2012
The offer
The offer to raise 337.3m securities comprises 1) a Woolworths Retail Shareholder Offer; 2) a
Broker Firm Offer; 3) a General Public Offer; and 4) an Institutional Offer.
Applicants under each offer will be required to apply for an Australian dollar value of stapled
units and will pay the final price determined per stapled unit. The final price will be determined
at the completion of the Institutional Offer, in a range of $1.26-1.50 per Stapled Unit.
Settlement of the Institutional Offer is underwritten and cannot be less than $100m without
the consent of the Lead Manager. All four offers are conditional on each other, i.e. if one does
not proceed, the others will not proceed.
337.3
247
0
100
200
300
400
500
600
Components of SCA's equity base
Equity raise Capital distribution(Shares outstanding, m)
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 42
Time table Below we provide a time table for the approval process and timing of each of the four offers.
Fig 55 Time table for proposal…index inclusion likely from 26 November 2012
Event Date
Woolworths Retail Shareholder Offer, Broker Firm Offer and General Public Offer open
Monday, 15 October 2012
Woolworths Retail Shareholder Offer, Broker Firm Offer and General Public Offer close
Tuesday, 20 November 2012
Meeting Proxy Forms, and online proxy appointments, to be lodged with Woolworths Registry
By 11.30am (Sydney time) Tuesday, 20 November 2012
Voting Record Date 7pm (Sydney time) Tuesday, 20 November 2012
Annual General Meeting of Woolworths Shareholders 11am (Adelaide time) Thursday, 22 November 2012
(or as soon after that time as the Extraordinary General Meeting of
Woolworths, scheduled to commence at 8.30am (Adelaide time) on that day,
has concluded or been adjourned) Institutional Offer opens Thursday, 22 November 2012 Institutional Offer closes Friday, 23 November 2012 Woolworths Shares commence trading on ASX without an entitlement to the distribution
Monday, 26 November 2012
SCA Property Group commences trading on ASX on a conditional and deferred settlement basis
1
Monday, 26 November 2012
Distribution Record Date 7pm (Sydney time) Friday, 30 November 2012
Implementation Date - Distribution of Stapled Units to Woolworths Distribution Participants - Allotment of Stapled Units under the Offer
Tuesday, 11 December 2012
Unconditional and deferred settlement trading of Stapled Units commences on ASX
Wednesday, 12 December 2012
Dispatch of holding statements for Stapled Units By Tuesday, 18 December 2012 Stapled Units commence trading on ASX on a normal settlement basis Wednesday, 19 December 2012
Notes: 1. We understand index inclusion is likely from this date. Source: Company data, Macquarie Research, November 2012
Stocks mentioned Woolworths (WOW AU, A$28.43, Outperform, TP: A$33.35, Greg Dring) Charter Hall Retail REIT (CQR AU, A$3.56, Restricted) Centro Retail Australia (CRF AU, A$2.12, Neutral, TP: A$2.16) CFS Retail Property Trust Group (CFX AU, A$1.93, Neutral, TP: A$2.03) Westfield Retail Trust (WRT AU, A$3.08, Neutral, TP: A$3.07) GPT Group (GPT AU, A$3.45, Neutral, TP: A$3.60) Growthpoint Properties (GOZ AU, A$2.15, Underperform, TP: A$1.96) Stockland (SGP AU, A$3.37, Underperform, TP: A$3.19) Commonwealth Property Office (CPA AU, A$1.04, Underperform, TP: A$1.07) Investa Office Fund (IOF AU, A$2.83, Outperform, TP: A$3.02)
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 43
Appendices Appendix 1 – Board and management
The SCA board is chaired by Philip Marcus Clark AM. The board has a further 4 Non-
Executive directors.
Anthony Mellowes has been appointed as an interim CEO under transitional services
agreement for a period up to 12 months. After implementation of the transaction the SCA
board will undertake an executive search to fill the role of CEO. Anthony Mellows will be able
to participate in this process at his own election.
Fig 56 Overview of board and management
Board and Management
Name Function
Management Anthony Mellowes CEO(interim)
Kerry Shambly CFO
Board Philip Marcus Clark AM Chairman
James Hodgkinson Non-Executive Director Ian Rollard Non-Executive Director Philip Redmond Non-Executive Director Belinda Robson Non-Executive Director Mark Lamb General Counsel and Company Secretary
Source: Company data, November 2012
Board of Directors
Philip Marcus Clark AM, Chairman
Mr Clark was formerly Managing Partner of law firm Minter Ellison from 1995 to 2005. Prior to
joining Minter Ellison, Mr Clark was a Director and Head of Corporate with ABN Amro
Australia, and prior to that he was Managing Partner of law firm Mallesons Stephen Jaques
for 16 years. Mr Clark is a member of the JP Morgan Advisory Council and serves on a
number of government and private company boards.
Mr Clark was made a Member of the Order of Australia in June 2007 for service to the legal
profession and business.
James Hodgkinson, Non-Executive Director
Mr Hodgkinson is a Senior Investment Banker with real estate specialisation, most recently as
an Executive Director of Macquarie Group.
Mr Hodgkinson has extensive experience as Principal in the establishment, strategy and
growth of a number of both listed and unlisted investment vehicles and operating businesses
in Australia, Asia and North America. Mr Hodgkinson was also Chief Executive Officer of
Macquarie Industrial Trust for six years prior to that trust‟s merger with Goodman Industrial
Trust. He is a Director of Goodman Japan Limited, and from February 2003 until September
2011 was a Director of the Goodman Group and a member of its Audit Committee.
Mr Hodgkinson is an alumni member of the Advisory Committee of the Macquarie foundation
and is active in the “not for profit” sector. He has initiated and assisted in the fund raising
initiatives and strategic support of a number of community based organisations, including as a
Founding Governor of the Cerebral Palsy Foundation and as Founder and Chairman of the
Cerebral Palsy Alliance of NSW‟s 20/Twenty Challenge.
Mr Hodgkinson has a Bachelor of Economics Degree, is a Certified Practising Accountant
and is a Fellow of the Australian Property Institute.
Ian Pollard, Non-Executive Director
Dr Pollard has been a company director for over 30 years. He is currently Chairman of RGA
Australia and a director of Milton Corporation and the Wentworth Group of Concerned
Scientists.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 44
Dr Pollard‟s previous listed company directorships include retailers Just Group (Chairman)
and OPSM Group, as well as Corporate Express Australia (Chairman), GIO Australia and
DCA Group. Dr Pollard was previously Managing Director of Development Capital of Australia
(later DCA Group, which he founded in 1984) and Managing Director of investment bank
Development Finance Corporation Limited.
An actuary and Rhodes Scholar, Dr Pollard is the author of a number of books, including
three on Corporate Finance.
Philip Redmond, Non-Executive Director
Mr Redmond has over 30 years of experience in the real estate industry including over five
years with AMP‟s real estate team and over 12 years with the investment bank UBS from
1993 to 2005.
At UBS, Mr Redmond held the position of Managing Director, Head of Real Estate Australasia
and played a significant role in establishing the bank‟s real estate business in Australasia and
the development of the listed property trust sector in Australia. Between 2006 and 2010, Mr
Redmond was a non-executive director of the responsible entity of several Australian listed
REIT‟s managed by ING management Limited and he continues to hold a non-executive
directorship with Galileo Funds Management Limited, the responsible entity for Galileo Japan
Trust.
Mr Redmond holds a Bachelor of Applied Science (Valuation), a Master of Business
Administration from the Australian Graduate School of Management, and is a Member of the
Australian Institute of Company Directors.
Belinda Robson, Non-Executive Director
Mrs Robson is an experienced real estate executive, having worked with Lend Lease for over
20 years in a range of roles including most recently as the Fund Manager of the Australian
Prime Property Fund Retail.
At Australian Prime Property Fund Retail, Mrs Robson was responsible for portfolio
management and the development and implementation of the fund strategy, as well as
reporting to the Fund Board and its Investor Advisory Board.
Mrs Robson‟s previous roles with Lend Lease included Head of Operations, Australian Prime
Fund Series, and Portfolio Manager, Australian Prime Property Fund Retail. Mrs Robson
holds a Bachelor of Commerce (Honours) from the University of New South Wales.
Mark Lamb, General Counsel and Company Secretary
Mr Lamb has over 20 years‟ experience in the private legal sector as a partner of Corrs
Chambers Westgarth (and subsequently Herbert Geer) and in the listed sector as General
Counsel of ING Real Estate.
Mr Lamb has extensive experience in retail shopping centre developments, acquisitions,
sales and major leasing transactions, having acted for various REITs and public companies
during his career.
Management
Anthony Mellowes, Interim CEO
Mr Mellowes is currently acting as Head of Asset Management and Group Property
Operations for Woolworths. Mr Mellowes has been employed by Woolworths since 2002 and
has held a number of senior property related roles within Woolworths.
Prior to joining Woolworths, Mr Mellowes was Asset Development Manager for Lend Lease
Real Estate Investments and Development Finance Manager for Lend Lease Developments.
Prior to Lend Lease, Mr Mellowes worked in portfolio management for Westfield Limited, and
commenced his career at Ferrier Hodgson & Co.
Mr Mellowes holds a Bachelor of Financial Administration and has completed the Macquarie
Graduate School of Management‟s Strategic Management Program.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 45
Kerry Shambly, CFO
Ms Shambly is currently employed as Manager – Capital Transactions Group at Woolworths,
and will be employed by SCA Property Group from the Implementation Date. Ms Shambly
has been employed by Woolworths since 2002 and has also held the role of General
Manager Finance – Property.
Prior to joining Woolworths, Ms Shambly held a number of senior roles at Lend Lease,
including Investment Manager – Private Equity and Infrastructure, Chief Financial Officer –
Private Equity and Infrastructure, and Group Taxation Manager. Ms Shambly also previously
worked in Corporate Finance and Treasury roles at Hoyts Cinema Group. Ms Shambly
commenced her career as an accountant at Ernst & Young.
Ms Shambly is a Chartered Accountant and holds a Bachelor of Commerce, and has
completed the Macquarie Graduate School of Management‟s Strategic Management Program
and the Chief Executive Women‟s (CEW) Leaders Program.
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 46
Appendix 2 – Competing centres within catchments
Below we present the competing shopping centres in the catchment of the top 10 assets by NOI and 9 Australian development assets.
Top 10 assets by NOI:
Fig 57 Pakenham (Sub-regional, Victoria): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Pakenham Place Shopping Centre 15,856 LLC / Lend Lease (APPF) Public Company /
Unlisted Property Trust Sub Regional Coles, Safeway, Target
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 58 Murray Bridge (Sub-regional, WA): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Centro Murray Bridge 8,186 Private Investor Private Investor Neighbourhood
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 59 Kwinana Marketplace (Sub-regional, WA): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Rockingham City 61,225 CFX Listed Property Trust Regional Coles, K-mart, Target
Rockingham Village Shopping Centre 692 S & N Rifici / G.K.S. Valerini Private Investor Neighbourhood
Seaview Shopping Centre 1,244 Belvaas Nominees Pty Ltd Private Investor Neighbourhood
Stargate Shopping Centre Leda 2,876 Carcione Nominees Pty Ltd Private Investor Neighbourhood
Mandurah Terrace 542 Anamoor Pty Ltd Private Investor Neighbourhood Coles, Big W, K-mart, Woolworths
Orelia Shopping Centre 992 Khan, Jaffer Private Investor Neighbourhood
Shoalwater Shopping Centre 4,779 Baler Pty Ltd Private Investor Neighbourhood IGA
Stargate Shopping Centre Charthouse 2,186 Carcione Nominees Pty Ltd Private Investor Neighbourhood IGA
Stargate Shopping Centre Pt Kennedy 5,337 Carcione Nominees Pty Ltd Private Investor Neighbourhood IGA
Waikiki Village Shopping Centre 8,683 Westgate Property Investments Pty Ltd Private Investor Neighbourhood Woolworths
Centro Warnbro 11,285 CRF Listed Property Trust Sub Regional Coles, Woolworths
Stockland Baldivis 6,899 SGP Listed Property Trust Neighbourhood Coles
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 47
Fig 60 Mt Gambier (Sub-regional, SA): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Adelaide Arcade 6,620 Adelaide Arcade Pty Ltd Private Investor City Centre
Adelaide Central Market 3,085 The Corporation of the City of Adelaide Private Investor City Centre Market
Adelaide Central Plaza 27,891 Precision Group Private Investor City Centre David Jones,
Charles Street Plaza 3,958 Undisclosed Private Investor Undisclosed Private Investor City Centre
Citi Centre Arcade 16,400 SA Government State Government City Centre K-Food Express
City Cross 8,163 James Arcade Private Investor City Centre
Da Costa Arcade 12,099 Angaet Holdings Private Investor City Centre
Myer Centre - Adelaide 61,985 Colonial First State (Private Investor Fund 1) Unlisted Property Trust City Centre Myer,
Pelican Plaza Shopping Centre 2,806 Cobar No 10 Pty Ltd Private Investor Neighbourhood
Regent Arcade 4,388 Malabe Group Private Investor City Centre
Renaissance Arcade 2,708 Southern Cross Arcade Pty Ltd Private Investor City Centre
Renaissance Centre 16,132 Joffield Investment (Aust) Pty Ltd Private Investor City Centre
Rundle Arcade 3,206 Indio Pty Ltd Private Investor City Centre David Jones, Myer, Woolworths
Rundle Mall Plaza 24,039 Weinerts Group Private Investor Sub Regional Harris Scarfe
Southern Cross Arcade 5,948 Southern Cross Arcade Pty Ltd Private Investor City Centre
Station Arcade 2,591 Station Arcade Pty Ltd Private Investor City Centre
Station Arcade - North 2,502 Zagame Corporation Private Investor City Centre
Station Underpass 190 Services SA State Government City Centre
Twin Plaza 848 B Perkas Nominees / Omeabon Pty Ltd Private Investor Neighbourhood
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 61 Central Highlands (Sub-regional, QLD): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Emerald Market Plaza 6,510 Centro MCS Syndicate Neighbourhood Coles, Target Country
Emerald Village 7,289 Centro MCS Syndicate Neighbourhood Woolworths
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 48
Fig 62 Lane Cove (Neighbourhood, NSW): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Crows Nest Plaza 3,070 Coles Group Private Investor Neighbourhood Franklins
Chatswood Central (NSW) 16,560 Bennelong Group Pty Ltd Unlisted Property Trust Neighbourhood
Chatswood Chase 58,894 CFX Listed Property Trust Regional David Jones, K-mart,
Mandarin Centre 11,493 Mandarin Development Private Investor Neighbourhood Hoyts
The Orchard Centre 2,288 Derek Property Developments Private Investor Neighbourhood
Victoria Plaza 2,740 Strata Plan (33999) Strata Plan Neighbourhood
Westfield Chatswood 76,696 WDC/WRT Listed Property Trust Major Regional Myer, Target, Aldi, Coles. Hoyts
Gladesville Shopping Village 5,066 Moch Pty Ltd Private Investor Neighbourhood Coles
Quadrangle Shopping Village 2,513 Verven Pty Ltd Private Investor Neighbourhood
Northbridge Plaza 6,960 Jaydesh Pty Ltd Private Investor Neighbourhood Woolworths
Berry Square 10,014 Eastmark Holdings Private Investor City Centre
Greenwood Plaza 8,742 Eureka Funds Management /
MGR Listed Property Trust /
Unlisted Property Trust City Centre IGA
Mount Street Plaza 10,480 Trust Company of Australia Ltd Private Investor City Centre
Northpoint 35,209 Tower Holdings Private Investor City Centre
Tower Square 3,505 Strata Plan (35644) Strata Plan City Centre
Macquarie Centre 97,704 AMP Capital Investors (AMP
Macquarie Pty Ltd) Unlisted Property Trust / Listed
Property Trust Major Regional Big W, Myer, Target,
Woolworths,
Stockland Cammeray 4,717 SGP Listed Property Trust Neighbourhood Harris Farm Market Birkenhead Point - The Outlet Centre 24,333 Jen Retail Properties Limited Private Investor Outlet Centre
Sutton Place 2,124 Strata Plan (38722) Strata Plan Neighbourhood
Big Bear Shopping Centre 12,234 Adwell Holdings Pty Ltd Private Investor Neighbourhood Coles
Neutral Bay Shopping Village 4,400 Cenijade Pty Limited Private Investor Neighbourhood Woolworths
Cremorne Town Centre 6,343 Strata Plan (64303) Strata Plan Neighbourhood
Newington Marketplace 4,032 Karnew Properties Pty Ltd Private Investor Neighbourhood Woolworths
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 63 Chancellor Park Marketplace (Neighbourhood, QLD): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Buderim Marketplace 3,990 Kingcraig Private Investor Neighbourhood
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Top 10 asset. Source: PCA, Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 49
Development assets:
Fig 64 Walkerville (Neighbourhood, SA): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
North Adelaide Village 9,088 North Adelaide Village Shopping Centre Private Investor Neighbourhood Foodland
Firle Plaza 12,140 ISPT (Core Fund) Super or Insurance Fund Sub Regional
Marden Shopping Centre 7,728 Taplin Corporation Pty Ltd Private Investor Neighbourhood Dan Murphy
Northpark Shopping Centre 13,725 Duke Group of Companies Private Investor Sub Regional Woolworths, Coles
The Avenues Shopping Centre 4,624 Undisclosed Private Investor Neighbourhood Coles
Regency Plaza Shopping Centre 6,428 Regency Plaza Nominees Private Investor Neighbourhood Woolworths
Sefton Plaza Shopping Centre 12,537 Magnia Investments Pty Ltd Private Investor Sub Regional Foodland, Target
Gilles Plains Shopping Centre 6,692 ANPAL Pty Ltd Private Investor Neighbourhood Woolworths
Greenacres Shopping Centre 2,987 Graham Investments Pty Ltd Private Investor Neighbourhood
Greenacres Shopping Mall 7,597 Greenacres Joint Venture Private Investor Neighbourhood
Coles Magill Road 2,021 Kensington Parts Pty Ltd Private Investor Neighbourhood
Seng Heng Shopping Centre 2,461 Seng Heng Shopping Centre Pty Ltd Private Investor Neighbourhood
Adelaide Arcade 6,620 Adelaide Arcade Pty Ltd Private Investor City Centre none
Adelaide Central Market 3,085 The Corporation of the City of Adelaide Private Investor City Centre Market
Adelaide Central Plaza 27,891 Precision Group Private Investor City Centre David Jones,
Charles Street Plaza 3,958 Undisclosed Private Investor Undisclosed Private Investor City Centre
Citi Centre Arcade 16,400 SA Government State Government City Centre K-Food Express
City Cross 8,163 James Arcade Private Investor City Centre
Da Costa Arcade 12,099 Angaet Holdings Private Investor City Centre
Myer Centre - Adelaide 61,985 Colonial First State (Private Investor Fund 1)
Unlisted Property Trust City Centre Myer,
Pelican Plaza Shopping Centre 2,806 Cobar No 10 Pty Ltd Private Investor Neighbourhood
Regent Arcade 4,388 Malabe Group Private Investor City Centre
Renaissance Arcade 2,708 Southern Cross Arcade Pty Ltd Private Investor City Centre
Renaissance Centre 16,132 Joffield Investment (Aust) Pty Ltd Private Investor City Centre
Rundle Arcade 3,206 Indio Pty Ltd Private Investor City Centre David Jones, Myer, Woolworths
Rundle Mall Plaza 24,039 Weinerts Group Private Investor Sub Regional Harris Scarfe
Southern Cross Arcade 5,948 Southern Cross Arcade Pty Ltd Private Investor City Centre
Station Arcade 2,591 Station Arcade Pty Ltd Private Investor City Centre
Station Arcade - North 2,502 Zagame Corporation Private Investor City Centre
Station Underpass 190 Services SA State Government City Centre
Twin Plaza 848 B Perkas Nominees / Omeabon Pty Ltd Private Investor Neighbourhood
Northgate Shopping Centre 5,169 Undisclosed Private Investor Private Investor Neighbourhood Woolworths
Norwood Mall Shopping Centre 3,839 Coles Group Ltd Public Company Neighbourhood
Welland Plaza 8,690 ISPT (Core Fund) Super or Insurance Fund Neighbourhood Coles
Torrensville Plaza Shopping Centre 4,541 Mount Barker Supermarket Pty Ltd Private Investor Neighbourhood Foodland
Centro Hilton (SA) 4,442 Centro MCS 18 Syndicate Neighbourhood Woolworths
Richmond Village Shopping Centre 1,013 Falesia Pty Ltd & Margaret Ann Antonas Private Investor Neighbourhood Coles
Port Canal Shopping Centre 19,079 Precision Group Private Investor Sub Regional Coles, K-mart, Woolworths
Centro Newton 13,590 Private Investor Private Investor Sub Regional
Newton Shopping Centre 8,438 Acadian Pty Ltd Private Investor Neighbourhood
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Development asset. Source: PCA, Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 50
Fig 65 Highett (Neighbourhood, Victoria): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
Moorabbin House and Home Centre 19,750 ABP Listed Property Trust Bulky Goods
Westfield Southland 130,033 WDC / AMP Capital Investors Listed Property Trust / Unlisted Property Trust
Super Regional Big W, David Jones, Harris Scarfe, K-mart, Myer, Target,
Aldi, Coles, Safeway Kingston Central Plaza 9,452 Australian Federal Government Federal Government Neighbourhood
Dendy Plaza Shopping Centre 6,118 Strata Plan Strata Plan Neighbourhood
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Development asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 66 Brookwater Village (Neighbourhood, QLD): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
Orion Springfield 32,696 MGR Listed Property Trust Sub Regional Aldi, Big W, Woolworths
Springfield Fair Shopping Centre 5,317 CQR Listed Property Trust Neighbourhood Coles
St Ives Shopping Centre 12,152 Geewood Pty Ltd Private Investor Neighbourhood Woolworths, IGA, Harris Farms
Port Village 3,249 Kator Pty Ltd Private Investor Neighbourhood Coles
Redbank Plaza 41,365 Yuan Chieh Pty Ltd / Yu Feng Group Private Investor Regional K-mart, Target, Coles, IGA
Mt Sheridan Plaza 7,650 Green Group Properties Pty Ltd Private Investor Neighbourhood K-mart, Woolworths, Coles
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Development asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 67 Margaret River (Neighbourhood, WA): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
Margaret River Shopping Centre 2,991 Not disclosed Private Investor Neighbourhood Woolworths
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Development asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 68 Cabarita (Neighbourhood, NSW): Competing Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner type Centre type Anchor
Balo Square 5,258 CQR Listed Property Trust Neighbourhood Coles
Sunnyside Mall 7,383 CQR Listed Property Trust Neighbourhood Coles, Target Country
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Development asset. Source: PCA, Company data, Macquarie Research, November 2012
Fig 69 Fairfield Heights (Freestanding, NSW): Shopping centres within ~5km catchment area
Competing asset Asset size
(GLA) Asset owner Owner Type Centre type Anchor
Fairfield Chase 9,495 Omnico Pty Ltd Private Investor Neighbourhood
Fairfield Forum 18,846 ISPT (Core Fund) Super or Insurance Fund
Sub Regional K-mart, Coles
Cabramatta Commercial Centre 4,210 Wing Sing Australia Pty Ltd Private Investor Neighbourhood
Smithfield Square 4,032 Solomon Oxman Cooper Private Investor Neighbourhood
Stockland Wetherill Park 54,789 SGP Listed Property Trust Regional Big W, Target, Woolworths, Franklins, Hoyts, Best & Less
Wetherill Market Town 8,500 Trimboli, Ross Private Investor Neighbourhood Franklins
Chester Square 8,299 Unlisted(sold by mirvac) Listed Property Trust Neighbourhood Woolworths
Greystanes Shopping Centre 5,592 Fabcot Pty Ltd Private Investor Neighbourhood
Pemulwuy Marketplace 5,195 CQR and Telstra Super Listed Property Trust Neighbourhood Woolworths
The Mall, Wentworthville 5,415 Metroland Australia Ltd Private Investor Neighbourhood Franklins, Go-Lo
Wentworthville Shopping Plaza 6,306 Guider Trading Company Pty Ltd Private Investor Neighbourhood Woolworths
Westmead Shopping Village 2,393 Drill Pty Ltd Private Investor Neighbourhood
Bass Hill Plaza 19,985 Memocorp Australia Pty Ltd Private Investor Sub Regional Franklin, Target, Woolworths
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Development asset. Source: PCA, Company data, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 51
Three assets that are both top 10 by NOI and development assets:
Fig 70 Lilydale Marketplace (Sub-regional, Victoria): Shopping centres within ~10km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
Chirnside Park Shopping Centre 41,700 GPT (GWSCF) Unlisted Property Trust Regional Coles, K-mart, Woolworths, Target, Safeway, Aldi,
Mooroolbark Terrace Shopping Centre 5,592 Strata Plan Strata Plan Neighbourhood
Arndale Shopping Centre (VIC) 6,600 Denfield Pty Ltd Private Investor Neighbourhood Big W, Coles, Harris Scarfe, Woolworths
Centro Croydon 9,768 Private Investor Private Investor Neighbourhood Coles
North Croydon Shopping Plaza 3,210 Cyncynatus Nominees Pty Ltd Private Investor Neighbourhood
Wangaratta Plaza 3,437 Undisclosed Private Investor Private Investor Neighbourhood IGA
Canterbury Gardens Shopping Centre 4,688 Canchester Pty Ltd Private Investor Neighbourhood
Centro Ringwood 16,494 Private Investor Private Investor Sub Regional Aldi
Eastland Shopping Centre 79,666 QIC Real Estate Unlisted Property Trust Major Regional Woolworths, Coles, Myer, K-mart, Big W
Ringwood Homemaker Centre 4,404 Crawfords Group Pty Ltd Private Investor Bulky Goods
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Lilydale Marketplace is both a top 10 and development asset.
Source: PCA, Company data, Macquarie Research, November 2012
Fig 71 Greystanes (Neighbourhood, NSW): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
Smithfield Square 4,032 Solomon Oxman Cooper Private Investor Neighbourhood
Stockland Wetherill Park 54,789 SGP Listed Property Trust Regional Big W, Target, Woolworths, Franklins, Hoyts, Best & Less
Wetherill Market Town 8,500 Trimboli, Ross Private Investor Neighbourhood Franklins
Stockland Merrylands 34,418 SGP Listed Property Trust Regional Coles, Franklins, Liquorland, Kmart, Target, Woolworths, Big W
Greystanes Shopping Centre 5,592 Fabcot Pty Ltd Private Investor Neighbourhood
Pemulwuy Marketplace 5,195 CQR and Telstra Super Listed Property Trust and Superannuation fund
Neighbourhood Woolworths
The Mall, Wentworthville 5,415 Metroland Australia Ltd Private Investor Neighbourhood Franklins, Go-Lo
Wentworthville Shopping Plaza 6,306 Guider Trading Company Pty Ltd Private Investor Neighbourhood Woolworths
Westmead Shopping Village 2,393 Drill Pty Ltd Private Investor Neighbourhood
Fairfield Chase 9,495 Omnico Pty Ltd Private Investor Neighbourhood
Fairfield Forum 18,846 ISPT (Core Fund) Super or Insurance Fund Sub Regional
Blacktown Mall 2,487 C. Yam Nominees Private Investor Neighbourhood
Blacktown Mega Centre 20,407 Arkadia Private Investor Bulky Goods
Homebase Prospect 25,530 CMW Listed Property Trust Bulky Goods
Quakers Court Shopping Centre 5,142 Marayong Mall Pty Ltd Private Investor Neighbourhood
Westpoint Shopping Centre (NSW) 79,921 QIC Real Estate Unlisted Property Trust Major Regional Coles, Woolworths, BIG W
Portico Plaza Toongabbie 8,700 North East Developments Pty Ltd Private Investor Neighbourhood Woolworths, Dimmeys
Greenway Shopping Centre 3,174 G. & J. Drivas Pty Ltd / Telado Pty Ltd Private Investor City Centre
Mayfair Plaza 1,035 Valore Holdings Private Investor City Centre
Parramall Shopping Centre 2,868 Sterling House Pty Ltd Private Investor City Centre
Westfield Parramatta 137,407 WDC / GIC Real Estate Listed Property Trust / Private Investor
Super Regional Woolworths, Coles, David Jones, Myer, K-mart
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Greystanes is both a top 10 and a development asset.
Source: PCA, Company data, Macquarie Research, November 2012
Fig 72 Katoomba Marketplace (Freestanding, NSW): Shopping centres within ~5km catchment area
Competing asset Area Asset owner Owner Type Centre type Anchor
Three Sisters Plaza 2,418 Seven Ex Pty Ltd Private Investor Neighbourhood
Leura 2,547 SCA Listed Property Trust Neighbourhood Woolworths
Notes: 1. Given limited data for private and syndicate transactions the owner of some assets may have changed. 2. Katoomba Marketplace is both a top 10 and a development asset.
Source: PCA, Company data, Macquarie Research, November 2012
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Fig 73 Appendix 3 – Key metrics for the property portfolio
Country State Property Type Completion
date Total
GLA sqm
Woolworths as % of total
GLA Occupancy (% by GLA)
Woolworths % of Gross Income over
forecast period
Number of specialty
stores
WALE (years
by GLA)
Woolworths Fully Leased Gross
Income($M)
Specialty Fully Leased Gross
Income($M)
Fully Leased Gross Income
($M)
Fully Leased Net Income($M)
Independent Valuers
Cap Rate
Independent Valuation
($M)
Completed Portfolio Berala Aus NSW Neighbourhood Aug-12 4,340 85% 100% 75% 5 18.4 1.35 0.45 1.80 1.52 8.00% 18.7
Burwood DM Aus NSW Freestanding Nov-09 1,400 100% 100% 100% 0 15.0 0.70 0.00 0.70 0.55 7.25% 7.3 Cardiff Aus NSW Neighbourhood May-10 5,853 76% 89% 60% 13 17.7 1.15 0.75 1.90 1.37 8.25% 16.0 Culburra Beach Aus NSW Freestanding Apr-11 1,698 97% 97% 97% 1 21.0 0.50 0.01 0.51 0.48 8.75% 5.3 Goonellabah Aus NSW Neighbourhood Aug-12 5,511 71% 95% 59% 9 16.1 1.04 0.72 1.75 1.37 8.50% 16.0 Griffith North Aus NSW Freestanding Apr-11 2,672 100% 100% 100% 0 14.9 0.70 0.00 0.70 0.62 7.50% 7.8 Inverell Big W Aus NSW Freestanding Jun-10 7,690 98% 98% 97% 1 14.9 1.60 0.05 1.65 1.58 10.00% 15.5 Katoomba DM Aus NSW Freestanding Dec-11 1,420 100% 100% 100% 0 14.9 0.50 0.00 0.50 0.46 7.50% 5.8 Lane Cove Aus NSW Neighbourhood Nov-09 6,721 51% 100% 42% 16 16.2 1.70 2.36 4.06 2.83 7.25% 38.3 Leura Aus NSW Neighbourhood Apr-11 2,547 80% 100% 68% 5 17.4 0.87 0.40 1.28 1.05 8.25% 12.5 Lismore Aus NSW Neighbourhood Dec-85 6,923 59% 85% 50% 19 14.0 1.50 1.48 2.98 2.04 8.75% 23.6 Macksville Aus NSW Neighbourhood Mar-10 3,623 88% 95% 83% 5 19.6 0.80 0.17 0.97 0.80 8.50% 9.2 Merimbula Aus NSW Neighbourhood Oct-10 5,133 65% 90% 69% 10 15.8 1.06 0.48 1.54 1.19 8.75% 13.5 Mittagong Village Aus NSW Neighbourhood Dec-07 2,235 71% 97% 73% 6 14.9 0.60 0.22 0.82 0.64 8.00% 7.8 Moama Marketplace Aus NSW Neighbourhood Aug-07 4,519 80% 97% 79% 4 18.8 1.06 0.28 1.34 0.93 8.50% 11.0 Morisset Aus NSW Neighbourhood Nov-10 4,141 79% 93% 73% 9 12.5 1.31 0.48 1.80 1.27 8.75% 14.0 Mullumbimby Aus NSW Freestanding Jun-11 2,373 100% 100% 100% 0 15.3 0.80 0.00 0.80 0.70 7.50% 9.0 North Orange Aus NSW Neighbourhood Dec-11 4,974 73% 99% 61% 13 18.3 1.50 0.93 2.43 1.87 8.00% 24.3 Swansea Aus NSW Neighbourhood Oct-09 3,750 93% 96% 88% 4 20.7 1.00 0.14 1.14 0.96 8.50% 10.7 Ulladulla Aus NSW Neighbourhood May-12 5,321 78% 99% 63% 10 18.9 1.10 0.65 1.75 1.30 8.50% 14.8 West Dubbo Aus NSW Neighbourhood Dec-10 4,208 71% 90% 58% 12 15.3 0.90 0.66 1.56 1.10 8.75% 12.0 Dunedin South NZ NZ Freestanding Jun-12 4,071 100% 100% 100% 0 15.0 1.07 0.00 1.07 0.99 8.25% 12.0 Hornby NZ NZ Freestanding Nov-10 4,317 100% 100% 100% 0 15.0 1.10 0.00 1.10 0.99 8.25% 12.0 Kelvin Grove NZ NZ Neighbourhood Jun-12 3,611 89% 98% 85% 5 18.3 0.67 0.12 0.79 0.67 8.00% 8.6 Kerikeri NZ NZ Freestanding Dec-11 3,887 100% 100% 100% 0 20.0 1.03 0.00 1.03 0.96 8.125% 11.5 Nelson South NZ NZ Freestanding Jun-08 2,659 100% 100% 100% 0 20.0 0.69 0.00 0.69 0.63 8.00% 7.7 Rangiora East NZ NZ Freestanding Jan-12 3,786 100% 100% 100% 0 20.0 0.86 0.00 0.86 0.78 8.125% 9.7 Rolleston NZ NZ Freestanding Nov-11 4,251 100% 100% 100% 0 20.0 0.95 0.00 0.95 0.87 8.25% 10.4 St James NZ NZ Neighbourhood Jun-06 4,505 78% 99% 74% 6 16.4 0.66 0.24 0.90 0.74 7.87% 9.6 Takanini NZ NZ Neighbourhood Dec-10 7,585 55% 94% 54% 11 12.9 1.23 1.03 2.26 1.94 8.00% 24.4 Warkworth NZ NZ Neighbourhood Sep-12 3,831 89% 89% 91% 5 17.9 1.12 0.12 1.24 1.04 8.00% 13.3 Carrara Aus QLD Neighbourhood Sep-11 3,718 91% 100% 80% 5 14.5 1.19 0.30 1.49 1.21 8.25% 14.7 Central Highlands Aus QLD Sub-Regional Mar-12 18,855 66% 100% 46% 23 16.1 2.77 3.28 6.04 4.64 7.75% 58.5 Chancellor park Marketplace Aus QLD Neighbourhood Oct-01 5,203 67% 96% 60% 15 16.4 1.67 1.12 2.79 2.24 8.50% 25.6 Collingwood Park Aus QLD Neighbourhood Nov-09 4,761 79% 100% 59% 9 17.9 0.88 0.61 1.49 1.03 9.00% 11.5 Coorparoo Aus QLD Neighbourhood May-12 4,645 82% 92% 65% 9 17.8 1.34 0.72 2.06 1.66 7.75% 21.2 Gladstone Aus QLD Neighbourhood Apr-12 4,794 72% 100% 61% 9 16.1 1.34 0.87 2.20 1.96 8.00% 24.0 Mackay Aus QLD Neighbourhood Jun-12 4,013 83% 98% 67% 6 17.5 1.26 0.62 1.87 1.56 8.00% 20.5 Mission Beach Aus QLD Neighbourhood Jun-08 4,099 80% 89% 69% 10 12.3 0.80 0.36 1.16 0.86 9.50% 9.2 Woodford Aus QLD Neighbourhood Apr-10 3,671 78% 88% 64% 9 12.2 0.70 0.38 1.08 0.82 9.50% 8.6 Blakes Crossing Aus SA Neighbourhood Jul-11 5,557 77% 92% 60% 14 12.8 1.28 0.85 2.12 1.68 8.50% 19.9 Mt Gambier Aus SA Sub-Regional Aug-12 27,093 84% 97% 61% 31 19.5 4.37 2.85 7.22 5.26 7.94% 67.5 Murray Bridge Aus SA Sub-Regional Nov-11 18,306 58% 98% 38% 45 11.8 2.80 4.44 7.24 4.79 8.25% 58.0 Albury Aus VIC Neighbourhood Dec-11 4,965 69% 99% 57% 10 17.0 1.18 0.87 2.04 1.53 8.25% 18.5 Bright Aus VIC Neighbourhood Apr-10 3,257 89% 89% 86% 4 19.4 0.70 0.11 0.81 0.66 7.50% 9.0 Cowes Aus VIC Neighbourhood Nov-11 5,030 74% 90% 66% 10 17.7 1.20 0.61 1.81 1.39 8.25% 16.8 DM Warrnambool Aus VIC Freestanding Dec-10 1,440 100% 100% 100% 0 15.7 0.43 0.00 0.43 0.38 6.75% 5.7 Emerald Park Aus VIC Freestanding Oct-11 2,915 100% 100% 100% 0 22.0 0.85 0.00 0.85 0.77 6.75% 11.5 Epping North Aus VIC Neighbourhood Sep-11 5,376 66% 91% 54% 14 16.0 1.17 1.01 2.18 1.59 7.75% 20.5 Maffra Aus VIC Freestanding Dec-10 2,323 100% 100% 100% 0 15.1 0.70 0.00 0.70 0.66 7.00% 9.3 Mildura Aus VIC Freestanding May-12 9,160 99% 100% 97% 1 19.8 2.03 0.06 2.09 1.83 8.00% 23.0 Pakenham Aus VIC Sub-Regional Dec-11 17,668 69% 100% 44% 35 12.3 3.05 3.74 6.79 4.98 7.50% 68.0 Warrnambool Aus VIC Neighbourhood Sep-11 4,534 83% 95% 75% 5 13.6 0.93 0.31 1.23 0.92 8.25% 11.1 Busselton Aus WA Neighbourhood Sep-12 5,223 88% 96% 82% 6 19.1 1.60 0.35 1.95 1.50 8.50% 18.2 Kwinana Marketplace Aus WA Sub-Regional Dec-12 28,139 47% 83% 29% 82 11.9 3.10 7.64 10.74 7.08 8.25% 87.0 Treendale Aus WA Neighbourhood Feb-12 7,280 48% 73% 39% 17 9.2 1.13 1.76 2.89 1.98 8.25% 24.4
Sub Total Completed portfolio 56 331,577 75% 95% 61% 537 15.8 69.6 44.6 114.2 87.2 8.10% 1,074.0
Development Portfolio Cabarita Aus NSW Neighbourhood May-13 3,421 78%
68% 12
1.12 0.53 1.66 1.30 9.00% 14.9
Fairfield Heights Aus NSW Freestanding Dec-12 3,802 91%
86% 2
1.15 0.19 1.34 1.28 7.50% 16.0 Greystanes Aus NSW Neighbourhood Jun-14 5,559 54%
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1.43 2.27 3.69 3.04 8.00% 38.2
Katoomba Marketplace Aus NSW Freestanding Dec-13 9,387 100%
100% 0
3.10 0.00 3.10 2.89 7.50% 38.5 Bridge Street NZ NZ Freestanding Apr-13 4,293 100%
100% 0
1.07 0.00 1.07 0.90 7.75% 11.7
Newtown NZ NZ Neighbourhood Dec-12 4,868 92%
86% 6
1.36 0.22 1.58 1.17 7.50% 16.5 Stoddard Road NZ NZ Freestanding Feb-13 4,200 100%
100% 0
1.27 0.00 1.27 1.18 7.75% 15.3
Tawa NZ NZ Freestanding Feb-13 4,200 100%
100% 0
1.00 0.00 1.00 0.94 7.75% 11.7 Brookwater Village Aus QLD Neighbourhood Feb-13 6,713 64%
48% 12
1.15 1.22 2.37 1.93 8.50% 24.8
Walkerville Aus SA Neighbourhood Apr-13 5,344 79%
65% 12
1.35 0.73 2.08 1.47 7.75% 19.5 Highett Aus VIC Neighbourhood May-13 5,808 75%
59% 13
1.50 1.03 2.53 1.82 7.75% 24.0
Lilydale Marketplace Aus VIC Sub-Regional Aug-13 21,997 58%
39% 60
3.21 5.04 8.25 6.45 7.75% 80.5 Margaret River Aus WA Neighbourhood Apr-13 5,774 66%
39% 14
1.35 0.93 2.28 1.76 8.25% 20.7
Sub Total Development portfolio 13 85,366 76%
65% 158
20 12 32 26 7.90% 332.0
Total 69 416,943 75% 95% 61% 695 15.8 89.6 56.8 146.4 113.3 8.10% 1,406.0
Source: Company data, Macquarie Research, November 2012.
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Fig 74 Appendix 4 – Neighbourhood and Sub-regional sales analysis
Asset State Date of transaction
Size (sqm)
Sale price ($m)
Price per sqm
Initial yield (%) Anchor tenant(s) Acquirer Vendor
Neighbourhood assets
Woolworths Campsie Shopping Centre NSW Aug-2012 3,646 17.0 $4,663 7.10% Woolworths RMMK Investment Holdings (No 1) Pty Ltd
Jason Kim, John Kim and Sue Ja Kim
Pittwater Place NSW Jul-2012 11,907 56.6 $4,754 8.83% Coles RREEF Brookfield Multiplex
Cessnock Plaza NSW Jul-2012 5,614 20.5 $3,652 8.82% Woolworths A & A Lederer Pty Ltd AMP Capital Investors Limited
Coolum Park Shopping Centre QLD Jul-2012 3,992 15.7 $3,930 8.40% Woolworths CPSC Pty Ltd Private Consortium (John Francis Cagney, James Melvyn Athorn, Nicola Jane Cagney,
Margaret Ann Athor Station Plaza NSW Jun-2012 7,306 13.5 $1,848 11.33% Coles Haben Property Fund Pty Ltd Playful Pty Ltd
Midland Central Shopping Centre WA Jun-2012 3,261 12.3 $3,772 7.52% Supa IGA, Dan Murphy's, Guardian Pharmacy
Mair Property Funds Limited Abacus Property Group
Sun Valley Market Place QLD Jun-2012 0 7.0 $0 9.75% IGA Gladstone1 Pty Ltd Pacific Court Group Pty Ltd
Peregian Springs Shopping Centre QLD May-2012 4,750 20.4 $4,300 8.74% Coles Alceon Group FKP Property Group
The Village QLD Apr-2012 7,880 33.2 $4,213 9.28% LaSalle Australia Core Plus Fund Domaine SEQ Growth Fund
Park Ridge Village Shopping Centre QLD Apr-2012 5,265 25.0 $4,748 8.16% Undisclosed Undisclosed
Miami One Shopping Centre QLD Apr-2012 4,616 14.1 $3,055 12.09% Coles Ham Brothers Ronbar Enterprises Pty Ltd
Carramar Shopping Centre WA Mar-2012 5,429 22.8 $4,190 8.06% Woolworths Undisclosed Peet
Wembley Downs Shopping Centre WA Mar-2012 1,743 7.9 $4,547 7.88% Undisclosed WDSC Pty Ltd
Alderley Plaza QLD Feb-2012 1,176 12.0 $10,204 7.46% Bi-Lo Coles Group Property Developments Ltd
PCN Projects
Hope Island Shopping Centre QLD Jan-2012 5,502 25.4 $4,617 8.41% PGA Pty Ltd Recurring Pty Ltd
Centro Albion Park NSW Jan-2012 5,570 15.5 $2,783 9.57% Woolworths Undisclosed Centro MCS 17
West Gosford Shopping Centre NSW Dec-2011 9,560 28.5 $2,981 7.75% Coles Coles Group Property Developments Ltd
Adwell Holdings Pty Ltd
Centro Newcomb VIC Dec-2011 8,613 26.0 $3,019 7.77% Woolworths Safeway, Aldi Koroneia Pty Ltd Centro MCS 17
Nerang Mall Shopping Centre QLD Dec-2011 8,692 23.4 $2,692 11.00% Woolworths LaSalle Australia Core Plus Fund Centa Investments Pty Ltd
SpringHill Shopping Centre VIC Dec-2011 5,500 23.0 $4,182 8.16% Coles Undisclosed Australand
Tannum Central Shopping Centre QLD Dec-2011 4,483 14.0 $3,117 8.06% Tannum Pty Ltd Tannum Central Pty Ltd
IGA Marketplace QLD Dec-2011 1,902 9.8 $5,142 8.00% IGA Kaliwest Pty Ltd Consolidated Properties Group
Red Edge QLD Dec-2011 1,307 7.4 $5,624 7.79% Drug Awareness and Relief Foundation
Rededge Partners (Toowoomba) Pty Ltd
Centro Warners Bay NSW Nov-2011 5,087 24.6 $4,828 8.56% Coles Warners Bay Village Pty Ltd Centro MCS 19
Busselton Boulevard Shopping Centre WA Nov-2011 4,837 16.2 $3,339 8.49% Coles Vukelic Property Group Cockles Pty Ltd
Dee Why Market Shopping Centre NSW Oct-2011 4,614 22.5 $4,876 8.70% Woolworths AMW Corporation Pty Limited DW Shopping Centre Pty Limited
Gladstone Shopping Centre QLD Oct-2011 6,096 17.0 $2,789 8.71% Woolworths CQR and Telstra Super CPT Custodian Pty Ltd
Coles Morwell VIC Sep-2011 5,266 9.1 $1,719 8.77% Coles Undisclosed Centro MCS 34
Bridgepoint Shopping Centre NSW Aug-2011 5,116 42.9 $8,376 8.20% Franklins, Harris Farm Wingdom Pty Ltd Frasers Property Australia
Centro Albany QLD Aug-2011 10,238 40.1 $3,919 9.10% Coles CQR Centro MCS 8
Lilydale Shopping Centre VIC Aug-2011 8,751 37.1 $4,237 7.52% Fabcot Pty Ltd Stockland
Centro Lismore NSW Aug-2011 8,397 23.5 $2,799 6.56% Woolworths Woolworths Centro MCS 34
Ashgrove Shopping Centre QLD Aug-2011 5,213 21.3 $4,076 7.76% Undisclosed Fabcot Pty Ltd
MKM Shopping Centre VIC Aug-2011 7,045 16.2 $2,300 9.00% Undisclosed Pomeran Pty Ltd
Lake Cathie Shopping Centre NSW Aug-2011 3,557 8.1 $2,263 9.80% Woolworths Ocean Drive Holdings Pty Ltd Boonmajareon and Lukin
Thornlie Square WA Jul-2011 14,583 21.0 $1,440 9.50% Coles, Super IGA Nick Dimauro Australian Unity Property Syndicate East West
BKK Shopping Centre NSW Jul-2011 1,461 20.0 $13,689 6.74% Hing Cheong Pty Ltd Maxgrow Developments Pty Ltd
Centro Whites Hill QLD Jul-2011 3,980 15.5 $3,894 8.34% Woolworths Private Investor Centro MCS 37
Cronulla Centre NSW Jul-2011 1,784 13.8 $7,735 6.99% Lionis Geelan Group
Centro Birallee VIC Jul-2011 5,669 11.7 $2,064 9.63% Coles Hadley Green Securities Pty Ltd CSI Fund
Childers Shopping Centre QLD Jul-2011 3,300 8.0 $2,424 8.38% Woolworths Mainscreen Pty Ltd Credworth Pty Ltd & Grange Property Holdings Pty Ltd
Blunder Road Shopping Centre QLD Jun-2011 7,379 20.6 $2,786 9.54% Aldi, Primary Healthcare Centre, ALH Tavern
Jedab Pty Ltd Lend Lease Core Plus Fund
Glenwood Park Shopping Village NSW Jun-2011 3,188 13.5 $4,235 7.84% Woolworths Yuhu Investment Holding Pty Ltd South Source Investment (Australia) Pty Ltd
Mandurah Shopping Centre WA Jun-2011 3,153 9.7 $3,076 7.89% RGO Enterprises Pty Ltd and Silverleaf Investments Pty Ltd
DLC Investments Pty Ltd
West Ryde Marketplace NSW May-2011 6,376 34.0 $5,332 7.97% Woolworths, Woolworths Liquor CQR and Telstra Super Woolworths
Thornleigh Marketplace NSW May-2011 6,766 28.0 $4,138 7.72% Woolworths, Dan Murphy's CQR and Telstra Super Woolworths
Greystanes Shopping Centre NSW May-2011 5,627 25.5 $4,532 9.55% Woolworths, Franklins Fabcot Pty Ltd Goldana Investments Pty Ltd
Source: JLL, Macquarie Research, November 2012
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Fig 75 Appendix 4 – Neighbourhood and Sub-regional sales analysis (cont)
Asset State Date of transaction
Size (sqm)
Sale price ($m)
Price per sqm
Initial yield (%) Anchor tenant(s) Acquirer Vendor
Neighbourhood assets (cont)
Rutherford Marketplace NSW May-2011 6,946 25.0 $3,599 7.68% Woolworths, Woolworths Liquor CQR and Telstra Super Woolworths Pemulwuy Marketplace NSW May-2011 6,196 19.0 $3,066 7.78% Woolworths CQR and Telstra Super Woolworths Windsor Marketplace NSW May-2011 4,405 16.0 $3,632 8.29% Woolworths CQR and Telstra Super Woolworths Berowra Village Shopping Centre NSW May-2011 4,119 15.0 $3,642 9.91% Coles Green 88 No 2 Pty Ltd Berowra Village Pty Ltd Oxley Mall NSW May-2011 4,926 14.8 $2,994 6.92% Coles Coles Group Property Developments
Ltd Viento Diversified Property Fund
Breakfast Point Village Centre NSW May-2011 3,145 9.3 $2,949 7.67% IGA Bittini Pty Ltd Rose Property Group The Parks S.C. SA May-2011 3,882 7.1 $1,832 8.04% Parks Shopping Centre Pty Ltd Hualam Pty Ltd Bundoora Square Shopping Centre VIC Apr-2011 4,886 20.9 $4,278 7.30% Coles CoInvest Lascorp Development Group (Aust) Pty Ltd North West Plaza QLD Mar-2011 9,512 14.5 $1,524 8.40% Consolidated Properties Group Ltd Becton Investment Management Limited Lakewood Shopping Centre NSW Mar-2011 4,300 11.3 $2,630 9.12% Pittwater Property Investments Pty Ltd Lakewood Shopping Centre Pty Ltd Gawler Northern Markets Shopping Centre SA Feb-2011 6,005 19.5 $3,247 7.91% Coles Wakefield Properties Pty Ltd Makris Group Dernancourt Village Shopping Centre SA Feb-2011 7,331 16.2 $2,210 7.05% Coles Aretzis Group DW Kidman and MD Lewis Crestwood Plaza QLD Feb-2011 2,946 12.8 $4,345 8.19% Supa IGA Undisclosed Private Investor Lukin Family Trust McCrae Plaza Shopping Centre VIC Feb-2011 3,068 11.6 $3,781 7.36% McCrae Plaza Pty Ltd McCrae Retail Investments Ascot Park Shopping Centre SA Feb-2011 2,235 6.7 $2,998 7.20% Drake Foodland Ascot Park Shopping Centre Pty Ltd DLC Investments Pty Ltd Indooroopilly Junction QLD Jan-2011 4,460 12.6 $2,818 8.94% Private investor FKP Property Group Gordon Shopping Centre and Gordon Village Arcade NSW Dec-2010 13,686 67.0 $4,896 8.70% Woolworths, Harvey Norman CQR Gordon Property Trust and Gordon Property
Investment Trust Marsden Park Shopping Centre QLD Dec-2010 8,217 35.2 $4,278 8.78% Coles Syndicate arranged by Ashe Morgan
Winthrop and Village Fair Yung Chong Pty Ltd
Miller Community Shopping Centre NSW Dec-2010 9,695 11.9 $1,227 13.20% Revelop Pty Ltd Gold Valley Investment Pty Ltd Margaret River Shopping Centre WA Dec-2010 2,990 11.1 $3,696 7.64% Vukelic Properties Pty Ltd Charter Hall Retail Management Ltd Coogee Village NSW Dec-2010 1,242 9.9 $7,971 9.92% Woolworths Private Syndicate (managed by
Diamond Properties) Undisclosed
The Mall, Wentworthville NSW Oct-2010 5,467 18.3 $3,347 8.36% Undisclosed Global Real Estate Assets Corporation Centrepoint Shopping Centre VIC Oct-2010 4,614 9.9 $2,146 9.01% Undisclosed Centro MCS 19 St Agnes S.C. SA Sep-2010 10,211 35.5 $3,472 8.32% Coles Australian Retail Property Consultants Centro Properties Group (Centro MCS 12) Diamond Creek Shopping Station VIC Sep-2010 5,064 19.0 $3,752 7.70% Ken Hansen Deal Corporation Dee Why Grand Shopping Centre NSW Aug-2010 10,046 68.0 $6,770 7.53% Coles, Harris Farm Undisclosed Dee Why Projects Leeton Market Plaza NSW Aug-2010 4,828 6.1 $1,263 10.82% Franklins Undisclosed APGF The Avenues Shopping Centre SA Jul-2010 4,858 23.0 $4,737 7.19% Undisclosed Makris Northgate Village Shopping Centre SA Jul-2010 5,020 18.6 $3,710 6.10% Whatevertoo Holdings Pty Ltd Makris Total 1,516 8.38%
Sub-regional Assets
Tamworth City Plaza NSW Oct-12 13,766 35 $2,542 10.10% Coles, Kmart CQR Not disclosed Dubbo Shopping Centre NSW Oct-12 12,745 30.5 $2,393 10.20% Coles, Target CQR Centro MCS23 Lake Macquarie Fair NSW Oct-12 20,336 35.2 $1,731 8.60% Woolworths, Big W, Coles CQR CHDRF (remaining 50%) Bateau Bay Square (Bay Village) NSW Aug-2012 29,162 164 $5,624 8.00% Coles, Woolworths, Aldi, Kmart Charter Hall RP2 Stockland Calamvale Central QLD Jun-2012 17,326 62 $3,578 8.15% Big W, Woolworths YFG Shopping Centres Pty Ltd Domaine SEQ Growth Fund Hollywood Plaza Shopping Centre SA May-2012 1,500 73 $48,667 10.70% Target, Coles, Woolworths Armada Funds Management Centro MCS 9 Wanneroo Central Shopping Centre WA Apr-2012 16,300 70 $4,294 8.47% Coles, Kmart, Supa IGA, Red Dot,
best & Less Telstra Super and CQR Wanneroo Central Pty Ltd
Noosa Civic Shopping Centre QLD Mar-2012 31,808 200 $6,288 6.75% Woolworths, Big W Queensland Investment Corporation Global Real Estate
Stockwell
Stirling Central Shopping Centre WA Mar-2012 14,890 29 $1,948 9.05% Fairthorne Darwil Pty Ltd Centro Townsville QLD Feb-2012 13,650 36.5 $2,674 8.81% Coles, Kmart Stockland Centro MCS 17 Centro Newton SA Dec-2011 13,568 37.75 $2,782 7.53% Salia Pty Ltd Centro MCS 37 Lansell Plaza VIC Dec-2011 18,227 32.5 $1,783 9.00% Coles, Safeway (Woolworths),
Kmart CQR CSI Fund and Centro Retail Trust
Northgate Shopping Centre WA Nov-2011 15,905 46.5 $2,924 8.82% Coles, Target, best & Less LLREP 3 Centro MCS 8 Taree City Centre NSW Oct-2011 15,528 53.5 $3,445 8.26% Big W, Woolworths Perks Property Investments BNY Trust Company Australia Palms Shopping Centre NSW Oct-2011 14,636 30.8 $2,104 10.10% Coles, Big W Gowings Bros. Ltd AMP Capital Property Income Fund Ballina Central Shopping Centre NSW Jul-2011 14,183 29 $2,045 8.30% Big W, Ritchies Supa IGA Alceon Group Mirvac Funds Limited Point Cook Town Centre VIC Jun-2011 42,642 176 $4,127 7.25% Target, Harris Scarfe, Coles, Aldi,
best & Less, Rebel, Dan Murphy's Stockland Walker Corporation
Carnes Hill Marketplace NSW May-2011 17,197 77 $4,478 7.33% Woolworths, Big W, Dan Murphy's Telstra Super and CQR Woolworths Highlands Marketplace NSW May-2011 16,387 47.5 $2,899 7.43% Woolworths, Big W Telstra Super and CQR Woolworths Centro Hervey Bay QLD Mar-2011 15,564 65 $4,176 7.31% Target, Action, The Warehouse Stockland Leda Holdings and Centro Australia
Wholesale Fund Total 1,331 8.07%
Source: JLL, Macquarie Research, November 2012
Macquarie Private Wealth Shopping Centres Australasia (SCA)
16 November 2012 55
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 30 Sept 2012
AU/NZ Asia RSA USA CA EUR Outperform 50.00% 56.85% 61.54% 41.38% 63.19% 44.15% (for US coverage by MCUSA, 7.35% of stocks covered are investment banking clients)
Neutral 36.62% 25.14% 27.69% 52.13% 30.77% 30.57% (for US coverage by MCUSA, 9.31% of stocks covered are investment banking clients)
Underperform 13.38% 18.02% 10.77% 6.49% 6.04% 25.28% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)
Company Specific Disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
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