Mar 06 2019Add to Favorites
MP Funds Management (MPFM) has made its first investment of 2019, a co-investment with another group that MPFM has a successful and ongoing co-investment relationship with.
The acquisition of the Crossroads Homemaker Supercenter (the subject property) is an opportunity of scale and dominance in one of Australia’s most significant growth regions. The centre offers an existing net lettable area of 47,997sqm on 143,997sqm land over 4 separate lots. 93% of the property income is underpinned by national retailers including Bunnings Warehouse, Freedom, Fantastic Furniture, the Good Guys and Nick Scali.
The Property is located at the junction of the M5 and M7 Motorways and within 15 minutes’ drive of the proposed Western Sydney Airport. The area has seen significant infrastructure investment in the recent years and is set to experience strong forecast population growth. 300,000 new residents are forecast to move into the area in the next 30 years, in line with the greater Sydney projections of a forecast population growth to 8 million in the next 40 years, supported by the NSW governments c.$85b infrastructure spend commitment.
The Property is to be purchased with the benefit of a circa 3.3-year WALE and a strong occupancy rate of 93% enabling opportunity to maximise the income on the asset through progressively bringing tenancies to higher market rents as expiries and market reviews occur. Additionally re-configuring various areas of the subject property will maximise value over time. The existing gross passing rent averages approximately $285 per sqm. Equivalent comparable space within Sydney achieves rent of $300 - $325 per sqm.
The asset is located on the intersection of three major arterial roads, which services up to 168,000 vehicle movements per day giving accessibility to a catchment of over 1 million people within a 30-minute drive. 1500 on-site car spaces and co-location with international retail warehouse Costco, provide foundational elements for a strong trade and highly visited location.
The flexible layout of the property, the scale and location open the asset to a multitude of strategies to maximise investment value.
MPFM believes the purchase of the subject property represents a unique opportunity to acquire a well located and very well priced, land holding of over 14 hectares within one of the fastest growing residential catchment areas in Sydney. Located just 15 minutes’ drive to the new western Sydney airport, the precinct is due to experience a major growth trajectory.
The 34% site coverage gives scope for considerable upside, and the initial cash investor yield, commencing at 6.25% and growing to over 10% in the first 3 years is attractive, and is underpinned by a strong national tenancy profile.
Of the $85 million of equity raised for the acquisition of the subject property, a fund managed by global manager BlackRock provided 50%.
MPFM believes that the purchase price of $140m is compelling buying as represents $2,900psqm on NLA and a 40% discount to replacement cost, which is estimated at $230m. Additionally, the comparable rents supported by a Savills valuation show there is significant scope for rental growth when considering the current average rents at $280 per sqm within the subject property and comparable at $300-$325 per sqm.
MPFM believes the investment case for the subject property will receive ongoing benefit from being located directly opposite a separately owned Costco Warehouse which is doing over $200m per annum in sales, meaning the existing foot traffic and consumer spend can be drawn to the subject property.
Mandi Prager is the principal of MP Funds Management. MP Funds Management has provided investment funding for over $1.1bn of real estate based investments across 22 transactions and produced an average annualised investment return of 21-22% (IRR).
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