Larry Schlesinger | 11 September 2012

Buyers sought for Challenger’s Kings Cross Centre below iconic Coca-Cola sign with $25 million expectations

One of Sydney's best-located shopping centres, the Kings Cross Centre beneath the iconic neon  Coca-Cola sign, has been listed for sale by fund manager Challenger.

The retail centre at 82-94 Darlinghurst Road, Potts Point, is anchored tenanted by a two-level maze-like Coles and surrounded by apartment buildings, hotels, bars, restaurants and cafes that make up the social fabric of Kings Cross and Potts Point, one of the most densely populated parts of Sydney.

It forms part of the Challenger Premier Hybrid Property Fund and in 2009 had a book value of just under $26 million.

ASX-listed Challenger is a life insurance and investment management firm managing in excess of $33 billion in assets and is a significant investor in property and infrastructure. It was set up in 1985 and backed by Kerry Packer from 1998, when his Consolidated Media held a nearly 20% stake. James Packer sold this stake in  2009.

An expressions of interest campaign, which closes on October 4, is being led by CBRE’s Steve Lerche and Sashi Makkapati in tandem with City Commercial’s Warren Duncan and Miron Solomons.

Lerche is expecting offers around the $25 million mark and expects interest from private investors and "genuine foreign investor interest".

He says the centre’s highly recognised location below Sydney’s iconic Coca-Cola sign will be a “key attraction for prospective purchasers as will the strength of the tenancy profile”.

In 2004 it traded for $39 million when fund manager HSBC Asset Management bought what was then the Kingsgate Shopping Centre as well as the Coca-Cola sign from New Zealand's Kingsgate Investments.

Challenger acquired the shopping centre when it acquired HSBC’s asset management business in 2005.

The fund manager spent $11 million redeveloping it as part of a wider gentrification wave occurring across Kings Cross, Potts Point and Darlinghurst areas at the time.

The heritage-listed Coca-Cola sign – called by some "the gateway to the cross" – is considered one of Australia’s most recognisable advertising signs.

It was acquired by Coca-Cola Amatil in 2008, when it bought it from Challenger Advertising.

Coca-Cola Amatil had leased the sign since it was built in 1976 and was paying around $1 million a year just before acquiring it.

The shopping centre sits at the base of the Zenith Residences, a 97-apartment complex that was formerly the Millennium Hotel.

Aside from Coles and Liquorland, the centre comprises 24 speciality stores including Pie Face and Flight Centre, four kiosks and four ATMs and has a gross lettable area of 4,429 square metres spanning three levels.

The centre is currently 98% leased, with the Coles and Liquorland occupying more than half of the available retail space (2,600 square metres) on a lease expiring in 2022.

Coles is currently paying base annual rent of just over $1 million with fixed 4% to 5% annual reviews.

When fully leased the centre brings in net income of just over $2 million annually.

The vacant 110-square-metre shop, which faces out onto William Street, is being offered for lease at a gross annual rent of around $140,000.

City Commercial's Warren Duncan says the area has undergone “major gentrification with the revitalisation of William Street, and the establishment of fashionable apartment buildings, hip hotels and trendy bars, restaurants and cafes”.

He says the area’s demographic has evolved to service a growing number of affluent professionals who have significantly altered the character of the suburb.

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