Westfield owner Scentre sells off $1.3b interest in Brisbane mall

“Following these transactions, approximately $1.3 billion of new capital will have been introduced into the group,” chief executive Elliott Rusanow said on Friday.

“This is consistent with our long-term capital management strategy and provides the group with further capital to pursue our strategic objectives and deliver sustainable growth for our security holders.”

Separately, Scentre is also understood to be in talks with the country’s biggest superannuation fund, Australian Retirement Trust, to take at least a 25 per cent stake in the $4 billion jewel in its crown, Westfield Sydney.

The divestments are part of a wide-reaching plan by Rusanow, the company’s former chief financial officer, who took over leading the company three years ago, to reshape Scentre’s finances and develop apartments at its malls.

One of Rusanow’s first challenges was to de-lever a balance sheet battered by the downturn in the retail sector through the pandemic. At the same time, opportunity beckons for the country’s biggest mall owner whose vast land holdings offer plenty of scope for more apartment developments.

Scentre is already eyeing a pipeline of at least 5000 dwellings with potential for development after winning rezoning approval to allow for housing at two separate malls in Sydney and Canberra this year.

A third Sydney centre, Westfield Warringah Mall, is also under consideration for rezoning through a NSW government process designed to fast-track housing development in the state.

Rusanow’s ambitions are even greater than that as he harnesses Scentre’s expansive land bank to the opportunity presented by the national housing crisis.

The Westfield boss told The Australian Financial Review in August that Scentre was carefully assessing all 42 malls it owns and manages throughout Australia and New Zealand, to gauge their potential for further development, including housing.

“It’s fair to say we’re working on everything because we see there’s a tremendous long-term growth opportunity,” he told The Australian Financial Review.

“If three centres are delivering 5600 [dwellings], then for 42 centres, do the math. It’s going to be tens and tens of thousands of potential [dwellings].”

For Scentre, the most effective way of raising capital both to reduce debt and back its development ambitions has been to sell down interests in some of its malls rather than pursue an equity raising that would dilute its existing shareholders’ interest.

As the commercial property sector recovers, investment interest in shopping malls has also revived, adding support to Rusanow’s strategy to bring joint venture partners into its wholly owned malls, thereby releasing equity back to its balance sheet.

Scentre owns 12 of its 42 shopping malls outright, worth about $20 billion. Were it to sell down half interests in those centres, it could create a putative $10 billion in capital to bolster its balance sheet and fire up its development pipeline.

On the buy side in the Brisbane deal is ASX-listed Dexus, once best known as the nation’s biggest office landlord. Now led by Ross Du Vernet, Dexus is pursuing its own ambitious strategy to expand its funds management business after taking over much of a $28 billion platform managed by AMP Capital three years ago.

The initial quarter stake in Westfield Chermside, the country’s second-largest regional shopping centre by both sales and retail space, is held in a shopping centre fund run by Dexus that had been part of the AMP Capital portfolio.

For the acquisition of the subsequent quarter stake announced on Friday, Dexus has established a new fund, the Dexus Strategic Investment Trust, putting $170 million of its balance sheet capital into the vehicle initially to kick it off. That will be wound back to $50 million eventually as third-party capital flows in, it said.

Scentre has also chipped into the new fund as a “foundation investor” – effectively buying into its own sell-down – with a $50 million investment, a position it expects to hold for only a “temporary period”.