AUSTRALIAN RETAIL INVESTMENT MARKETHAMISH MCKNIGHTDIRECTOR | RATING & TAXATIONREAL ESTATE ADVISORY

OCTOBER 2018

STATE OF THE MARKET

URBIS.COM.AU

MARKET GROWTH: COMPONENTS OF GROWTH, AUSTRALIA – YE SEPTEMBER 1997-2017

Nominal - Total2.7%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1997 2001 2005 2009 2013 2017

Population Real Spend Per Capita RPI Nominal - Total

URBIS.COM.AU

POPULATIONPOPULATION GROWTH – AUSTRALIA – 1997-2017

POPULATION GROWTH INCREASING

0

100

200

300

400

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017M

ovin

g An

nual

Pop

ulat

ion

Gro

wth

Population Change on Previous Year Natural Increase Net Overseas Migration

URBIS.COM.AU

NATIONAL ECONOMYREAL GDP GROWTH – AUSTRALIA – 1998-2017

UNEMPLOYMENT RATE – AUSTRALIA – 1997-2017

20175.45%

5.7%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

GDP GROWTH AND UNEMPLOYMENT RATE TRENDING AT LONG-TERM AVERAGES

20172.8%

3.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

URBIS.COM.AU

NATIONAL ECONOMYHOUSEHOLD DEBT TO INCOME RATIO – AUSTRALIA – 1999-2017

WAGE GROWTH – AUSTRALIA – 1999-2017

DEBT & LOW WAGES GROWTH ARE MAJOR HANDBRAKES

2017193.7%

156.1%

100%110%120%130%140%150%160%170%180%190%200%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

20172.01%

3.3%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

URBIS.COM.AU

CONSUMERS & CONSUMPTIONRETAIL SHARE OF CONSUMPTION – AUSTRALIA – 1997-2017

CHANGING CONSUMPTION BASKET – AUSTRALIA – 10 YEAR & 7 YEAR CHANGE

RETAIL’S SHARE OF TOTAL HOUSEHOLD CONSUMPTIONHARD HIT OVER TWO DECADES

-2.7% pts

+2.8% pts

+0.9% pts

+2.4% pts

-2.0% pts

-0.7% pts

-1.9% pts

-4.0% pts

-3.0% pts

-2.0% pts

-1.0% pts

+0.0% pts

+1.0% pts

+2.0% pts

+3.0% pts

+4.0% pts

Retail Housing andFinance

Utilities Health andEducation

Transport Communication Recreation

Last 10 Years ChangeLast 7 Years Change

201734.3%

36.7%

30.0%31.0%32.0%33.0%34.0%35.0%36.0%37.0%38.0%39.0%40.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

URBIS.COM.AU

KEY OUTTAKES:

WAGE GROWTH IS LOW BUT EXPECTED TO INCREASE

CONSUMER CONFIDENCE IS BENIGN

GDP GROWTH IS SUBDUED

POPULATION GROWTH IS AT RISK

DISRUPTERS ARE AFFECTING BRICKS AND MORTAR RETAIL

UNDER NORMAL CIRCUMSTANCE WE’D WEATHER BUT WITH RETAIL PRICE GROWTH IS LOW IT’S A PERFECT STORM

URBIS.COM.AU

SUMMARY:

THE SHORT-MEDIUM TERM OUTLOOK REMAINS SUBDUED UNLESS ECONOMIC CONDITIONS IMPROVE

DISCRETIONARY RETAILING WILL CONTINUE TO BE WILL BE CHALLENGED

POPULATION GROWTH WILL BE AN IMPORTANT DRIVER OF DEMAND

RISING INTEREST RATES THREATEN RETAIL EXPENDITURE

HOW IS THIS TRANSLATING IN RETAIL CENTRES

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

TOTAL RETAIL TURNOVER GROWTH BY TIME OF LAST DEVELOPMENT – FY17REGIONAL CENTRES THAT HAVE EXPANDED WITHIN LAST 5 YEARS TYPICALLY ACHIEVED HIGHER GROWTH IN 2017

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%0-5 5-10 10+

Exceptions are due to recent competitor and economy impacts

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

OUTDOOR DINNING PRECINCTSCENTRES AREREMIXING TOMAINTAINRELEVANCY

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

MINI-MAJORS THE NEW ANCHORSTHE ALTERNATIVE TO DEPARTMENT STORES

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

MINI-MAJORS THE NEW ANCHORSBUT AT WHAT COST

2 YEARS RENT FREE

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

INCENTIVESDEPARTMENT

STORES MAJORS MINI-MAJORS SPECIALTY SPECIALTY(FOOD CATERING)

REGIONAL 24 Mths 12-24 Mths 12-24 Mths 12-18 Mths 24-36 Mths

SUB-REGIONAL - 12-24 Mths 12-24 Mths 9-12 Mths 18-24 Mths

NEIGHBOURHOOD - 12-24 Mths - 3-6 Mths 6 Mths

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

CAPPED OCCUPANCY COSTS (PLANNED REBATES) & INCENTIVESLEASE INCENTIVE - RENTAL REBATE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Tenant: Spendless Shoes Gross Face Rent: $90,000 $94,500 $99,225 $104,186 $109,396

Lease Term: 5 Year Planned Rebate: $45,000 $45,000 $45,000 $0 $0

Rent Review: Fixed 5% Annual Gross Effective Rent: $62,817 -30.2%

LEASE INCENTIVE - FITOUT CONTRIBUTION YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Tenant: HartCo. Homewares Gross Face Rent: $85,250 $89,513 $93,988 $98,688 $103,622

Lease Term: 5 Year Incentive: $85,250 $0 $0 $0 $0

Rent Review: Fixed 5% Annual Gross Effective Rent: $68,914 -19.2%

LEASE INCENTIVE - FITOUT CONTRIBUTION & RENTAL REBATE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Tenant: H&M Gross Face Rent: $540,000 $567,000 $595,350 $625,118 $656,373

Lease Term: 5 Year Incentive + Planned Rebate: $1,135,000 $141,750 $148,838 $0 $0

Rent Review: Fixed 5% Annual Gross Effective Rent: $249,669 -53.8%

URBIS.COM.AU

THE IMPACT OF CAPITAL EXPENDITURE

LEASE INCENTIVE - FITOUT CONTRIBUTION & RENTAL REBATE YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Tenant: H&M Gross Face Rent: $540,000 $567,000 $595,350 $625,118 $656,373

Lease Term: 5 Year Incentive + Planned Rebate: $1,135,000 $141,750 $148,838 $0 $0

Rent Review: Fixed 5% Annual Gross Effective Rent: $249,669 -53.8%

Outgoings $450,000

Net Rental Income -$200,331

URBIS.COM.AU

INVESTMENT MARKET:

RETAIL PERFORMANCE

MARKET SNAPSHOT

KEY TRANSACTIONS

RETAIL PERFORMANCE

URBIS.COM.AU

REGIONAL SHOPPING CENTRESREGIONAL CENTRES – CHANGE IN MAT (SAME CENTRE)

DEPARTMENT STORES & DDS CONTINUE TO STRUGGLE

+0.8%SPECIALTY SHOPS

+4.1%MINI-MAJORS

-0.7%DEPARTMENT STORES

DDS

-5.8%+3.4%SUPERMARKETS

Homewares 10.6%

Retail Services 10.1%

Food Catering 2.1%

Jewellery 1.5%

Food Retail 1.3%

Apparel 0.7%

General Retail 0.0%

Mobile Phones -4.8%

Leisure -18.8%

RETAIL SPECIALTIES

+ 1.3%TOTAL RETAIL

URBIS.COM.AU

SUB-REGIONAL SHOPPING CENTRESSUB-REGIONALS – CHANGE IN MAT (SAME CENTRE)

SUB-REGIONAL SHOPPING CENTRES ARE REBOUNDING DDS

+0.4%

+2.6%SUPERMARKETS

16.1%MINI-MAJORS

+2.0%SPECIALTY SHOPS

Retail Services 10.4%

Food Catering 7.7%

Mobile Phones 2.7%

Jewellery 1.2%

General Retail 0.6%

Food Retail -1.5%

Apparel -1.6%

Leisure -3.7%

Homewares -6.2%

RETAIL SPECIALTIES

+ 2.9%TOTAL RETAIL

URBIS.COM.AU

SUPERMARKET SHOPPING CENTRESSUPERMARKETS – CHANGE IN MAT (SAME CENTRE)

CENTRES REMIXING TO STAY RELEVANT -0.1%

SUPERMARKETS

+0.9%MINI-MAJORS

+0.9%SPECIALTY SHOPS

Homewares 10.6%

Food Catering 8.9%

Retail Services 5.4%

Apparel -0.6%

General Retail -1.0%

Food Retail -1.3%

Leisure -5.3%

Jewellery -9.0%

Mobile Phones -13.7%

RETAIL SPECIALTIES

+ 0.4%TOTAL RETAIL

URBIS.COM.AU

CBD SHOPPING CENTRESCBD CENTRES – CHANGE IN MAT (SAME CENTRE)

MAJORS STRUGGLED IN CITY CENTRES

Retail Services 19.5%

Food Catering 5.7%

General Retail 4.4%

Jewellery 3.0%

Food Retail -1.0%

Apparel -4.3%

Leisure -6.9%

Homewares -18.1%

Mobile Phones -22.9%

+0.3%SPECIALTY SHOPS

+2.4%MINI-MAJORS

-1.9%DEPARTMENT STORES

DDS

-13.4%-5.4%SUPERMARKETS

RETAIL SPECIALTIES

+ 0.1%TOTAL RETAIL

MARKET SNAPSHOT

URBIS.COM.AU

INCENTIVES

• REMAIN FLAT(New tenants

achieving reductions –

Sitting tenants renewing at

existing rent)

RENTSCAPITALISATION RATES

• STRATEGIC TENANT REMIX

• FUTURE GROWTH

CAPITAL PLACEMENT

• TWO TIER MARKET

• METRO VS REGIONAL

• LACK OF SUPPLY• VALUE

ACCRETIVE REDEVELOPMENT

URBIS.COM.AU

MARKET PRICING REFLECTING LONG TERM PRICING SHIFT

URBIS.COM.AU

RETAIL PRICING METRICS

URBIS.COM.AU

VICINITY PORTFOLIO

STATE TYPE OCCUPANCY PURCHASE PRICE

IMPLIED FULLY LET YIELD

Warnbro Centre WA Sub-Regional 99.3% $92.9M 8.16%

Currambine Central WA Neighbourhood 98.7% $91.0M 7.48%

Stirlings Central WA Neighbourhood 97.8% $44.0M 7.97%

Kalamunda Central WA Neighbourhood 94.4% $41.5M 6.93%

Bentons Square VIC Neighbourhood 95.1% $77.0M 6.71%

The Gateway VIC Neighbourhood 98.9% $50.0M 6.49%

West End Plaza NSW Sub-Regional 100.0% $66.0M 7.38%

Lavington Square NSW Sub-Regional 96.8% $52.0M 9.53%

Oxenford Village QLD Neighbourhood 99.9% $32.5M 6.70%

North Shore Village QLD Neighbourhood 100.0% $26.1M 6.15%

KEY TRANSACTIONS

URBIS.COM.AU

REGIONAL KEY TRANSACTIONS

PACIFIC EPPING & WERRIBEE

SALE PRICE $1 billion (50%)PURCHASER QICVENDOR Pacific Group of CompaniesEQUIVALENT YIELD RANGE Sub 4.25%10 YEAR IRR 7.57%

“FYE18 saw a high number of Regional centre sales,

with seven part sales recorded, representing

approximately 40% of the retail investment market”…”

URBIS.COM.AU

KEY TRANSACTION

INDOOROOPILLY SHOPPING CENTRE

SALE PRICE $800 million (50%)PURCHASER AMP CapitalVENDOR Eureka Real AssetsEQUIVALENT YIELD Sub 4.5%10 YEAR IRR 7.57%

“Indooroopilly represents the largest single asset

retail transaction and is the first super regional sale with management rights in over

a decade”…”

URBIS.COM.AU

KEY TRANSACTION

BRANDON PARK SHOPPING CENTRE

SALE PRICE $135 million (100%)PURCHASER Newmark CapitalVENDOR Vicinity Centres & Telstra SuperINITIAL YIELD 7.11%$/ SQM GLAR $5,870

“After a lengthy period on market, the sale represented a 3.8% premium to book value and is one of only four sub

regional transactions in metro Melbourne since 2015”…”

URBIS.COM.AU

KEY TRANSACTION

ROCKINGHAM CENTRE

SALE PRICE $305 million (50%)PURCHASER AMP CapitalVENDOR Future Fund & Canada Pension Plan Investment Board EQUIVALENT YIELD Reported 5.25% - 5.50%INITIAL YIELD 5.75%

“The Future Fund and CPPIB have divested two

50% shares in Rockingham and Grand Plaza in

Brisbane to a separate purchaser”…”

URBIS.COM.AU

KEY TRANSACTION

HIGHPOINT SHOPPING CENTRE

SALE PRICE $680 million (25%)PURCHASER GPTVENDOR Besen FamilyEQUIVALENT YIELD 4.00%10 YEAR IRR 6.25%$ PER SQM GLAR $17,600

“The purchase price reflected a 10% premium to

the GPT June 30 book value”…”

URBIS.COM.AU

KEY TRANSACTION

HOME HUB CASTLE HILL & MARSDEN PARK

SALE PRICE $436 million (combined)PURCHASER Aventus PropertyVENDOR LaSalle Investment ManagementEQUIVALENT YIELD 5.50% / 5.80%10 YEAR IRR 7.50% / 7.90%

“Large format retail has emerged as a market that

has gained momentum throughout 2017 with

several transactions setting new benchmarks for the

market”…”

URBIS.COM.AU

SUMMARY:DISCRETIONARY RETAILING WILL CONTINUE TO BE CHALLENGED

POPULATION GROWTH WILL BE AN IMPORTANT DRIVER OF DEMAND - CRITICAL TO DIVERSIFY OFFER TO MAXIMISE PERFORMANCE

SHIFT TOWARDS TWO TIER MARKET

PART SHARE INVESTING CONTINUES

CAPITAL REINVESTMENT TO VALUE ACCRETIVE DEVELOPMENT