Any analysis of the outlook for the shopping centre industry for the coming year needs to start with a broader conversation about the future of retail and the growing needs of communities. At Charter Hall, we believe the future of retail boils down to one simple principle: deeply understanding your customers and being prepared to adapt quickly to changing needs.
We interrogate each new initiative – whether related to our investments, our partnerships or the way we work, through the lens of our customers. This is the core of what we do and has a direct and profound bearing on our performance.
This singular focus has underpinned another strong year in 2016 for Charter Hall’s retail sector and a positive outlook for 2017. More importantly, it has also allowed us to deliver a high level of service to our stakeholders who comprise our capital partners, security holders, tenant customers, visitors to our centres and the communities in which we operate.
Our focus on our customers and our communities – including the 150 million shoppers who enter our centres each year – coupled with ongoing investment in developing our team, will continue to deliver robust growth to our $5.1-billion retail portfolio in 2017.
Sustained high performance
Charter Hall operates 161 retail assets valued at $5.1 billion (as at December 2016). As the leading owner and manager of Australian supermarket-anchored shopping centres and with a portfolio of hardware, automotive showroom and hospitality assets, we are providing a secure and growing income stream for our investors.
The listed vehicle for our shopping centres, the Charter Hall Retail REIT (ASX:CQR), valued at $2.55 billion, is one of the market’s most efficient, externally managed REITs. Our supermarket-anchored shopping centres enjoy stable occupancy of 98.0% and derive 50% of rental revenue from anchor tenants, Wesfarmers and Woolworths. As a high-performing REIT, CQR is a stable, sustainable investment vehicle, evidenced by the solid performance it has delivered security holders since listing on the ASX 22 years ago.
Our ability to acquire high-quality properties off market and our position as a leading property investment and funds management business continues to see us attract new capital partners to the wholesale funds management business.
We are leveraging our integrated business model of accessing, deploying, managing and investing equity to acquire strong-performing, convenience-based retail assets located in metropolitan areas with favourable demographic profiles.
This strategy enables us to develop and acquire new high-growth potential properties, which are enhancing the quality and scale of the retail portfolio, providing our capital partners with access to a sector-leading institutional-grade property portfolio.
Our strategy to acquire strong-performing, convenience-based retail assets is growing the investment base of our wholesale retail business, and introducing new institutional capital partners to our wholesale partnerships business. Our largest acquisition in 2016 was Campbelltown Mall in NSW, which we acquired for $197 million with our capital partner MTAA Super, one of Australia’s largest super funds. MTAA Super became our fifth institutional capital partner to our $2.3-billion retail wholesale funds management business.
Our strong retail development pipeline will add an additional $153 million to existing assets and a forward development pipeline of $179 million. This includes the $59-million Secret Harbour redevelopment in WA and the proposed $48-million major redevelopment of Lake Macquarie Fair and Mount Hutton Plaza in the Hunter region of NSW. We will continue to invest in redeveloping our centres and collaborate with our customers and the broader community to deliver convenient, enjoyable experiences across Australia.
We expect to deliver steady, sustainable growth in the coming year, further strengthening our retail portfolio and providing opportunities for our partners and stakeholders. Our business will evolve along with changes in market conditions and our decisions will be based on furthering our commitment to deeply understanding our customers and communities, and by strengthening our culture and opportunities for our team.
Customers rule in retail
The pioneering retailer GJ Coles declared in 1928 that “the customers themselves really decide what goods we shall stock in our stores”. That philosophy remains true today, with technology as a key conduit to continuous learning for what customers want, at scale.
Charter Hall is using technology to enable understanding of our customers’ needs. We recently launched an online sharing and customer collaboration platform where our centre teams share insights in real time across our portfolio. Within three weeks of launch, we achieved over 400 shared connections delivering invaluable insights. The platform shares knowledge across our national team of 180+ talented retail specialists increasing co-collaboration, customer-centred design opportunities, innovation and speed to market for new initiatives. Our tenant customer network now benefits from the collective brainpower coming from our teams across 77 centres.
There is a significant focus by commentators, possibly over-emphasised, about the threat of online to retail. We are seeing a continual evolution of the physical retailer; in their formats, store fit-outs, service proposition and, most importantly, how they relate to their customers. Retailers are using technology to understand and connect to their customers and blending bricks and clicks experiences to provide seamless shopping and stronger customer connection to their brand. We strongly believe that our centres will continue to play an important part as a community meeting place and technology innovation will increasingly blend the physical and online retail space delivering tailored, convenient experiences.
Building talent through culture
A strong and inclusive culture is fundamental for recruiting and retaining talent. Delivering high engagement with our teams, coupled with opportunities for advancement and enabling work with purpose ensured our talent remained motivated.
Our culture supports a team approach to innovation and our employees in cross-functional streams. The team identifies an opportunity, forms a stream, works to create solutions, tests these options with the end user and then prepares for change to be implemented. This collaborative approach quickly delivers solutions for our customers, our shoppers and the broader community.
We have also provided lateral career advancement opportunities by promoting team members from back-office function roles in head office to front-line customer-facing roles in our shopping centres. This has provided peer-learning experiences for our teams, diverse career paths for employees and new ways of working in the management of our centres. We believe in providing our people with ongoing opportunities to work in different parts of the business and we are now in the enviable position where talented, ambitious young people are approaching us for roles.
Our culture values a diverse and inclusive workforce and we source the best expertise by accessing talent from the widest possible pool. We are active members of the Property Male Champions of Change and, as a result, have employed more women leaders at Charter Hall and advocated more broadly for greater opportunities for women in the property industry.
In 2017 we will build on our achievements and continue to provide a workplace where all our team members will succeed.
Community success is our success
We recognise that the places we create offer more than a shopping experience, which is why our approach to sustainability incorporates a shared value framework that focuses on the areas of eco-innovation, place creation and wellbeing.
All shopping centres survive and thrive with the support and partnership of the communities they serve. They are designed to fulfill a deeper purpose in their communities as social and safe places, where people can shop in comfort, access information over free Wi-Fi, eat good food, drink great coffee, and easily tend to their children’s needs. Shopping centres, through their retail tenants, are often the largest employer in a community and play a vital role in community life. Charter Hall has contributed more than 3,500m2 of space (valued at over $500,000) to community groups and we continue to support initiatives in the regional communities where we operate.
At Secret Harbour in Perth, members of our project team will swim to Rottnest Island to raise funds for the Secret Harbour Surf Life Saving Club. We aim to raise $20,000 for the club through workplace giving and fundraising activities with partners, consultants, tenant customers and the local community.
The future
The way we live and consume continues to change. Higher-density living in cities is increasing, and the retail sector has responded by adapting to how and where people can shop. People are now buying groceries from the supermarket two to three times a week, replacing the large weekly shopping trip. This trend will continue to increase the footfall and expectations of convenience in our shopping centres, and subsequently, increase the opportunities for specialty retailers to grow sales.
Charter Hall has been responding to shifts in demographic and behavioral trends by deepening our commitment to non-discretionary convenience based retail. When we invest in or redevelop centres, we do so by understanding and honoring the needs of our customers and communities.
The future of retail lies in the hands of the customer and the best retailers do what great retailers have done in Australia for over a century. They talk to their customers, learn their likes and dislikes, understand their shopping habits and adapt their products and services to suit their customers’ needs. Charter Hall is hard-wired to these conversations and works closely with our retailer partners to respond quickly and fully to these changing expectations of shoppers.
Ultimately, our success in the coming year will come from knowing our customers and communities, understanding what they want, and providing what they need in a consistent and convenient manner. They – and our shareholders – expect nothing less.
