Stirling Property’s Investment Fund Targets 12.8% IRR with 7.8% Net Cash Distribution

Stirling is targeting a total return of 12.8% p.a. for investors over a 4-year period, including an average net cash distribution of 7.8% p.a. Junction Fair Shopping Centre is a 99.2% leased dominant neighbourhood shopping centre, anchored by Coles supermarket providing 50% of the Property’s income.

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Key Fund Features

  • Target IRR – 12.8% p.a. including an average cash distribution of 7.8% p.a., over 4 years, with a Gross Tax Effective* return of 17.7% p.a.
    • Base case IRR- 9.6% p.a. with an average cash distribution of 8.2% p.a. over a 6 year period
  • Non-discretionary and service based tenants comprise 77% of the Centre’s lettable area, including Coles occupying 50% with a lease to June 2027 and 2 x 10 year options.
  • Main Trade Area (MTA) benefits from stronger median income and higher population growth than the Sydney Metro average.

*Gross Tax Effective (GTE) is the gross equivalent return the Fund generates for an investor on the                                                highest marginal tax rate after considering tax deferred distributions.

 

Property Highlights

  • Coles anchored dominant neighbourhood shopping centre which is 99% leased with a 4.8-year WALE
  • Centre generates significant turnover in excess of $60m p.a.
  • Property site area of 11,250 sqm (2:1 Floor Space Ratio), with 7,226 sqm utilised. Opportunity exists for a further 15,100 sqm of lettable area
  • 231 onsite car spaces
  • Surrounded by affluent and well-established areas, with limited scope for competition

Strong Property Fundamentals

  • The Primary Trade Area (PTA) sector population is large at 21,530 persons
  • Across the PTA, the supply of supermarket floorspace is 27% below the Australian benchmark, translating to less competition
  • Coles has traded for more than 40 years in the location and is the dominant and only full-line supermarket within the Primary Trade Area (PTA).
  • PTA average per capita income of $49,568 p.a. is 18% greater than the Sydney Metropolitan average
  • Large sections of the PTA demonstrate average household income in excess of $140,000 p.a. (refer below)
  • The Main Trade Area (MTA) population is 41,500. It is projected to increase at an average annual growth rate of 1.6% p.a. to 2031, exceeding the Metropolitan Sydney average by 14% p.a. over the same period

Strategy Target

Stirling’s target strategy, forecasts an enhanced IRR over the base case of 12.8% p.a. with GTE of 17.7% p.a. over 4 years, includes:

  • Retail consultant has identified under-representation of 3 further non-discretionary and categories for the Centre, being:
    • Medical services
    • Broader takeaway foods
    • Retail services that complements the high household income of the Primary Trade Area (PTA)
  • With Coles’ larger than normal lettable area and based off Stirling’s preliminary due diligence, this presents an opportunity for Stirling to reposition the Centre with a restructure to the Coles lease and lettable area.

Strategy: Base Case

Stirling’s base case strategy, forecasts an average cash yield of 8.2% p.a. over the investment term, includes:

  • Review of the tenancy mix and where required remixing tenancies to ensure the Centre’s offering remains attractive to the MTA
  • Increase net operating income via realisation of operating cost savings
  • A focused marketing strategy targeting the strong affinity the MTA has with local retail amenity
  • Actively engage with Coles over the investment period to pursue an extension of the Coles lease via the exercise

and forecasts an IRR of 9.6% p.a. and a GTE of 12.5% p.a.

Revitalised Economy of Newcastle

Newcastle is a diversified City that has successfully transformed from a commodities-based exporter to a health and education dominated economy which employs 27% of the workforce.

Recent government infrastructure investment of $650 million in major projects include:

  • $310 million on light rail transport
  • $147 million upgrade to Newcastle airport connecting it to New Zealand, Asia and America
  • $95 million on University of Newcastle CBD campus
  • “Revitalising Newcastle” is a NSW Government program focused on activating the City to attract people, jobs and tourism to Newcastle

World class health and education sectors with:

  • John Hunter Hospital annually serving 370,000 patients and 2,705 staff, with major expansion planned.
  • The University of Newcastle has 26,600 students and 1,700 staff

Stirling Executive Team

Stirling is an AFS licence holder comprising a team of business executives with proven experience, at senior levels, in all forms of commercial and residential property, finance and town planning professions. Stirling draws on the combination of funds management skills and success from former Centuria Property Funds, Bankminster and M & G Real Estate executives together with the outstanding residential property development achievements of the Legacy Property team.

Stirling Co-investment

The directors of Stirling Property Funds Limited will, as it does with all its managed funds, be making a co-investment of at least $1.0 million in the Fund.

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