The chief executives of some of the country’s biggest landlords – Westfield operator Scentre and office tower owner Dexus – admit their massive real estate platforms could be taken over and privatised if their share prices continue trading weakly.
The frank acknowledgments from Scentre’s Peter Allen and Dexus’ Darren Steinberg, who leads the nation’s largest office tower owner, came amid discussion at the The Australian Financial Review Property Summit on the disruption to the sector sparked by the pandemic.
While much of the Summit focused on recovery, Mr Steinberg and Mr Allen admitted that continuing negativity over office towers and retail malls could ultimately be the catalyst for major corporate action.
“Quite frankly, Dexus will probably trade weakly,” Mr Steinberg told the Financial Review Property Summit. “The trend is not our friend.
“If Dexus trades at a discount for four years, then Dexus won’t be an option for the listed market because it will be taken private.”
Dexus, a $9.5 billion company, has been trading at a 20 per cent or more discount to its net tangible asset (NTA) value. This week its stock dropped further after Morgan Stanley downgraded the stock from overweight to underweight and slashed its target price over concerns on how it will fare in a high unemployment, low occupancy environment.
Running on short time frames, the listed market typically overshoots or undershoots in its pricing of stocks, Mr Steinberg said. In contrast, private equity takes a longer-term, through-the-cycle view of assets, pricing them differently.
“I’m seeing a lot of capital, some very smart capital, taking positions at good prices because they are playing a five- or 10-year view,” he said.
On the same panel as Mr Steinberg was Chris Tynan, the local real estate chief of global private equity giant Blackstone, itself touted as a prospective player that has run the ruler over Dexus.
“Darren is absolutely right: private capital does have the ability to take a non-daily mark-to-market view and look through a cycle,” Mr Tynan said. “They are very much more focused on those long-term trends. Blackstone globally is a believer in cities.”
Scentre Group, a $11.5 billion property trust, faces the same problem. Its stock is trading at a heavy discount of 40 per cent or more to its NTA amid uncertainty over further weakness in the retail sector as the economy contracts and shoppers go online.
From the Summit audience, Resolution Capital’s Andrew Parsons asked Mr Allen bluntly whether it would it not be better to simply delist Scentre, allowing its investors to sell out and recoup their investment at the NTA price.
“That would mean a 40 per cent immediate uplift in the value of their investment. Why not just delist Scentre Group?” Mr Parsons said.
Mr Allen said that bridging the gap between Scentre’s NTA and its trading price was “on our agenda”.
“That is something that will certainly definitely be explored if that discount remains in place,” he said.
One the biggest privatisations in recent years was of a listed office fund run by Investa, which was taken over by Oxford Properties in a $3.4 billion deal, outbidding Blackstone two years ago.
Investa chief executive Jonathan Callaghan agreed more buyouts were likely.
“In these sorts of situations the listed market is overshooting a little bit,” he told the Summit.
“But I do believe markets are efficient. I agree absolutely wholeheartedly, if a substantial discount to NTA persists in listed vehicles they will get privatised.”