The backdrop for retailing landlords is challenging. Macquarie expects comparable income growth will remain in the low single digits for Australian shopping centres. Given fixed escalators for specialty leases of 4-5%, the broker expects negative re-leasing spreads will prevail and this is not a particularly attractive growth profile.
The company has acquired 50% of Eastgardens for $720m and has flagged significant redevelopment potential for both retail and mixed use. Citi considers the acquisition strategically appealing, noting opportunities in a growing catchment. Pricing appears fair.