Scentre offloads office towers to Blackstone for $1.5b
In a record $1.52 billion deal, the country’s largest retail landlord Scentre has offloaded its office towers above Westfield Sydney to US private equity giant Blackstone, embarking on a buyback program to shore up its sagging stock price.
The offices, located above and around the CBD Westfield complex at 100 Market Street and 77 and 85 Castlereagh Street, have been acquired by Blackstone by way of a 299-year leasehold interest in the properties. It’s understood the sale represents a premium to book value in excess of 10 per cent.
The key property is the landmark office building at 85 Castlereagh Street, which was completed in 2011, with banking giant JP Morgan signing on as the anchor tenant of the 27-level tower.
Scentre Group, which owns and manages the Westfield mall empire in this country, will retain ownership of Westfield Sydney and Sydney Tower.
Scentre is under pressure to boost its share market performance with the stock price falling 9.5 per cent over the last 12 months as the retail sector faces strong headwinds brought on by online shopping and weaker consumer demand.
As a result of the transaction, Scentre will buyback $800 million worth of securities in an effort to increase its return on equity while maintaining a strong balance sheet, chief executive Peter Allen said.
The buyback will begin after the group’s half-year results announcement in August.
“Together with the recent joint venturing of Westfield Burwood, Scentre Group has now released $2.1 billion of capital to further pursue our strategic objectives, creating long-term value for security holders,” Mr Allen said.
Good move
Analyst Grant Berry, portfolio manager at SG Hiscock, said it was a good move by Scentre to seize on the opportunity to dispose of its office assets.
“We are at a very late stage in the cycle, the office market is very buoyant, capitalisation rates are lower and rents considerably higher than previous cyclical peaks,” Mr Berry said.
“The irony is that their own securities are trading at a discount so they can free up capital here, reduce their leverage and the excess capital, as they’ve flagged in their announcement today, can be redeployed into a buyback.”
Credit Suisse analysts said in a note the transaction had merit and should help alleviate investor concerns about the balance sheet and Scentre’s ability to fund its future development pipeline.
The deal represents a major bet on the potential for upside in the Sydney market by Blackstone, which is famed for its opportunistic “buy it, fix it, sell it” strategy.
Although the private equity giant declined to comment on its latest Australian deal, it is understood it has strong confidence in the prospects for the Sydney market, including leasing conditions.
The US player has clearly been hungry for opportunities in the Australian commercial market having last year attempted a $3.1 billion takeover of Investa Office Fund before narrowly losing out to Oxford Properties.
Biggest deal
This latest transaction is the largest property deal of the year, eclipsing the $1.476 billion purchase of 80 Collins Street in Melbourne by Dexus in May. The country’s biggest office landlord also purchased a half stake in the Harry Seidler-designed landmark in Sydney, MLC Centre, for $800 million earlier in the year.
It’s also not the first time Blackstone has done business with Scentre Group.
In 2015, the US investment firm bought Westfield Figtree and Westfield Warrawong in NSW and Westfield Strathpine in Queensland from the shopping centre landlord.
Last month Scentre also sold down a half stake in Sydney mall Westfield Burwood to Perron Group for $575 million on a yield below 5 per cent.
Get a weekly roundup of the latest news from Commercial Real Estate, delivered straight to your inbox!
