Originally published by UBS Asset Management
Your scribe attended a tour of Brisbane and Sunshine Coast assets this week. The market has some issues, largely due to the steady supply of office, retail and apartment projects. As you'd expect everyone was careful not to talk down the market and no one had default issues!
More interesting was the Brisbane based Cromwell Property Group (AX:CMW) bid for Investa Office Fund (AX:IOF). We attended a meeting with the CEO whilst in Brisbane to gain an insight into the plan of attack. The indicative, non-binding proposal of A$4.85/share in cash is inclusive of, on Cromwell’s assumption, an anticipated distribution of $0.10 per IOF unit for the half year period ending 30-Jun-17.
The Proposal is subject to a number of conditions including undertaking due diligence, with Cromwell wanting to see what capital commitments have been made to attract tenants. Cromwell won't provide names of their backers until Investa agrees to confidentiality provisions and Investa want more colour before they do. So it's chicken and the egg. In the meantime Investa are progressing their internalisation proposal. Having progressed this far, Cromwell appear unlikely to walk away should Investa offer to the buy their stake. Things are getting very interesting.
On the retail front we visited Scentre's (AX:SCG) (Westfield) largest asset by size, namely Chermside which is 10kms north of Brisbane. It happened to be the initial opening of their $355m project to extend the centre by 33,000m2. The asset is amazing, enjoying the second largest trade area (potential customers) after Westfield Parramatta. The new Sephora shop had around 2,500 customers lined up before it opened and when we visited at 3pm there were still around 100 waiting to enter. These people could have shopped online but chose the physical retail experience. So much for the demise of retail due to ecommerce!
Scentre is one of the rare groups thinking 20 years ahead and positioning their assets accordingly. They're happy to impact short term growth if the long term value proposition stacks up.
We also visited a centre in Chermside's shadow, Mirvac Group's (AX:MGR) recent acquisition of Toombul. It has always had a lot of potential and Mirvac are exploring ways to rejuvenate it. A smart outcome has been to convert an abandoned department stores and to convert it into 200 undercover car spaces. This worked a treat during the recent rain spell. Most local customers do their weekly shop here rather than visit the much larger and more congested Chermside up the road.
We had a look at a Goodman development south of Brisbane at Rochedale. They've been very strategic, locating their site south of Brisbane in order to attract clients who transport goods to and from Sydney. By delivering south of the city they avoid having issues with drivers who need to stop after 12 hours. It's line ball if drivers had to drive north of the city.
On the residential front we visited a number of projects by Mirvac and Metro and Stockland (AX:SGP). Newstead is a hive of activity with the area completely transformed from many years ago. Apartment projects litter the skyline and on the surface things seem reasonable, with most stock sold, minimal defaults and the rental market solid. Notwithstanding that the market will be impacted by the strong supply hitting the market this year. Overall the Brisbane market appears in reasonable shape with lots of capital being invested.