CFS Retail aims to sell lagging assets
In coming months, several retail real estate investment trusts will be offered as new floats, at a time when the underlying consumer sector remains under pressure.
But analysts have said that while shoppers remain cautious, owning bricks-and-mortar retail assets is still favoured.
This is due to the rising land values and the fact landlords can generate income from a variety of areas in a shopping centre, such as food courts, cinema ticket sales, international fashion brands and mobile devices. That helps to offset falling rents from discretionary goods such as mid-range fashion, homewares and high-end jewellery.
In the past six months, more than $3 billion of retail assets have changed hands.
CFS Retail has added to the momentum with the conditional sale of four shopping centres in Victoria to the proposed Pacific Retail REIT, which is looking to float in the next few months with an initial raising of close to $400 million.
Late last week, the US private equity group Blackstone, filed a registration statement with the US Securities and Exchange Commission relating to a proposed float.
Blackstone could raise as much as $US700 million ($761 million) from a public sale of the 522 US shopping centres it acquired in 2011 in its $US9 billion rescue of Australia's Centro Properties.
The price is yet to be disclosed, but the underlying value of the real estate is about $US13 billion.
According to brokers, the sale by CFS Retail of the Victorian centres in Altona Gate, Brimbank, Corio and Rosebud Plaza, for $446.5 million, was positive as the cash would be used to reduce debt and for new developments.
UBS analyst James Besson said the sale of the assets addressed the perception of CFS Retail's "long tail" portfolio of low-quality assets.
"However, the portfolio remains under pressure as illustrated by the net operating growth implied by the guidance of 1 per cent to 1.5 per cent comparable growth from CFS Retail, which in our view is an industry-wide trend," Mr Besson said.
"The transaction reduces gearing by 3.5 per cent to 4 per cent with near-term acquisitions the likely focus, such as additional direct factory outlets, which we support given its growth outlook versus regional shopping centres.
Bank of America Merrill Lynch property head Simon Garing said he was positive on the transaction which reduced CFS Retail's exposure to "B-grade" shopping centres (25 per cent to 21 per cent of the portfolio) and provided flexibility to pursue alternate asset acquisitions.
"The 'upgrading' of the portfolio will reduce CFS Retail's exposure to malls likely to experience negative NOI growth. We do however note the uncertainty of the deal given it is conditional on equity markets being supportive of a new IPO," Mr Garing said.
CFS Retail fund manager Michael Gorman confirmed the sale agreements were conditional on Pacific Retail REIT successfully raising capital via a public offer and therefore remained uncertain.
"Assuming that the IPO is successful, we anticipate that the transaction will settle in early September," Mr Gorman said.