Tough retail conditions are spilling over into the portfolios of major landlords with listed companies selling a series of centres at discounts to their book values, according to a new analysis by Macquarie Equities.
The market is being reset as landlords offload unwanted centres, with Stockland selling a centre in the regional NSW town of Bathurst and another on the Sunshine Coast at a 5% discount to their previous valuations at the end of 2018.
Macquarie Equities estimated that more than $1billion of neighbourhood and sub-regional shopping centres had sold in the last three months of 2018 and showed a 3 per cent discount to their book values.
Since October, Charter Hall Retail REIT and Vicinity Centres have also sold neighbourhood or sub-regional assets at discounts to book. Sub-regional assets had traded at about 5% discount to June 2018 book values but some market observers were not concerned.
Shaw and Partners analysts say that they “do not think the market will be too fussed that these (Stockland) assets were sold at a discount to book value”.
“The fact that Stockland was trading at a 15 per cent discount to NTA (Net Tangible Assets) at the time these asset sales were announced suggests the market had already priced in expectation of lower asset values across its broader portfolio”, they add.
Macquarie Equities says smaller, convenience-based neighbourhood assets have traded at a slim 2% discount to book values.
There is relatively strong demand for neighbourhood centres in auction rooms with many selling on yields at below 5% as they are viewed as relatively protected from the impact of e-commerce.
Slightly larger centres that have discount department store or department store anchors are mainly being bought as value-add or repositioning plays by groups with higher return hurdles that are demanding lower purchase prices.
Retail trusts, including Stockland and GPT, are already trading at a 5% discount to net tangible assets and others that hold only retail, like the Scentre Group, are trading closer to 9%.