Centro Properties Group has jumped at the opportunity of expanding its Unites States property portfolio by paying $700 million to Westfield for seven shopping centres.
Westfield’s managing director Peter Lowy said the group has decided to divest the centres because they no fitted Westfield’s investment criteria or long-term development plans.
“The recycling of capital into higher returning developments is consistent with the group’s long-term strategy and these transactions are similar to the sales last year of non-strategic properties in the United Kingdom: the Brunel Centre in Swindon and the Millgate Centre in Bury,” he added.
The seven properties are primarily discount department store oriented centres located across six states in the US.
The portfolio has a total lettable area of 4,993,552 sq ft with a mix of tenants, including Target, Sears, J.C. Penny, Dillard’s and Macy’s. Centro has bought the centres at an initial cash yield of approximately 7%.
The seven properties will form part of a new $1 Billion syndicate to be launched by Centro.
The Centro MCS 38 – International N0.5 fund will be the largest retail property syndicate offered in the Australian market.
The new Centro MCS 38 fund will include a diverse portfolio of 20 properties across 13 US state, including properties from the Kramont portfolio, the Vestal and Dover assets.
Centro will retain a significant co-investment in Centro MCS 38 through its long term holdings in the two managed vehicles, Direct Property Fund International and Centro Retail Trust, which have entered into agreements to acquire equity interests of 50% or $197 million and 20% or $78 million respectively in Centro MCS 38. The balance of the equity in Centro MCS 38 will be distributed largely to retail investors through Centro’s established and diverse Australian syndicate distribution channels.
Westfield will retain a 5% minority interest in Centro MCS 38.
Following the transaction, Centro will increase its funds under management from $9.9 billion to $10.6 billion.
Analysts’ Property Investment Research’s head of listed securities Paul Pavlidis said Centro is steadily transforming itself from a property trust into fund manager.
“In June 2005, Centro had in excess of $9 billion of FUM of which 55% were held in property. Today, there is in excess of $10.6 billion of FUM and 30% is held in property.
“What is amazing is how Centro has already raised 70% of the equity for MCS 38 and it has not gone to the market yet. And gathering from the market response (yesterday) retail investors are prepared to go along with Centro in this new vehicle,” Pavlidis concluded.
“It is particularly pleasing that investor demand and the continued evolution of the Centro business model has allowed us to acquire a significant new portfolio of retail assets and immediately distribute them into a new $1 billion retail property fund,” Centro’s chairman Brian Healy said.
“The continuing strong demand from Australian investors for quality direct retail property investments in the US is reflected in the significant size of this fund,” he added.
Centro’s chief executive Andrew Scott said the $700 million growth in Centro’s funds under management will result in further solid growth in Centro’s Ownership Services Business income.
“We are therefore pleased to announce a sustainable increase to forecast Centro distributions per security or DPS of 0.35 cents from the next full financial year 2007. Centro has also upgraded its FY2006 forecast DPS to 36.8c.
“The successful acquisition of new US assets and their prompt transfer to Centro managed funds evidences the rigour and flexibility of Centro’s Australian and US operations. Importantly, Centro’s gearing will remain at the lower end of the 30-40% target range, leaving Centro well positioned for future growth.” Scott added.
Westfield’s Lowy said the group will reinvest the proceeds from the sale into its redevelopment programme where the company generates 9%-10% initial cash yields and 14% unleveraged internal rates of return.
In addition to the Centro sale, the group has also agreed to sell Northwest Plaza in St. Ann, Missouri with a lettable area of 1,768,524 sq ft to Somera Capital Management for $US47 million, a premium above the carrying value of $US41.6 million as of 31 December 2005.
By Nelson Yap
