Scentre targets Westfield shops in $600m spree
Scentre Group has splashed out $600 million to lift its stake in a $6.6 billion slab of four shopping centres, sparking renewed interest in the retail property heavyweight undertaking an equity raising to keep its rising gearing in check as it mulls the purchase of a Sydney landmark.
The shopping centre owner, which Frank Lowy exited as chairman in May, revealed it had agreed with Dutch pension fund PGGM Private Real Estate Fund to redeem about $600 million of $1.2 billion in property notes issued in 2006.
Following the transaction, the listed group lifted its stake in a series of four shopping centres, including Westfield Tea Tree Plaza in outer Adelaide, Westfield Belconnen near Canberra, and Westfield Burwood in Sydney, by taking an additional 25% stake in each. The group also lifted its stake in Westfield Hornsby in Sydney by 5%.
$350 million-plus: Scentre leads charge for iconic David Jones store
“We are pleased to be able to accommodate PGGM’s requirements and to continue our relationship with PGGM as a provider of capital … while increasing our economic interest in these four centres,” Scentre chief executive Peter Allen says.
The group will fund the $600 million redemption through existing reserves, resulting in a 1.9% lift in gearing, which has sparked fresh hopes that the group will turn to equity markets for fresh capital as it approaches the upper level of its gearing range.
While gearing now sits at 35.2%, there is a belief throughout the sector that the group will continue its acquisitive streak, particularly as it remains a lead contender for Sydney’s David Jones clothing store, which has been put to market for around $400 million.
“With gearing at 32.3%, a large development pipeline to fund and elevated payout ratio, we recommend Scentre should consider a capital raise in the order of $777 million to $1.5 billion, given its attractive cost of capital, or sell the Sydney office tower,” CLSA analyst Sholto Maconochie says.
The analyst tells The Australian an equity raising will give the group more flexibility, but notes that the group is not under any pressure.
The latest transaction would lift gearing to around 35.2%, at which point the group still sits comfortably under the 40% threshold it needs to retain A-level Moody’s and S&P credit ratings.
“It doesn’t need to raise equity, but at these levels, would be supported and provide flexibility,” Maconochie says.
The group will fund the $600 million redemption through existing reserves, resulting in a 1.9% lift in gearing
Another analyst, who preferred to remain anonymous, agrees, noting that Scentre could shell out $400 million for the David Jones site and gearing would only lift to 38%.
But other factors might compel the company to opt for a capital raising, he says, including management incentives which are more closely aligned to raising equity rather than asset sales, and the group’s current net debt to earnings before interest, taxes, depreciation and amortisation position, which sits at a relatively high level of six times.
The announcement comes at the same time the country’s biggest property owners and developers are showing more willingness to tap debt markets for funds, over equities.
Mirvac revealed it had successfully issued $536 million in long-term US private placement notes, spanning between 11 and 15 years and priced between 195 basis points and 222 basis points over the 10-year US Treasury bond yields.
“The transaction attracted significant interest from investors, achieving an order book that was more than two times oversubscribed,” Mirvac chief financial officer Shane Gannon says
This article originally appeared on www.theaustralian.com.au/property..