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CRF enters unconditional contracts for the sale of a 50% ownership stake in three regional shopping centres for AUD690.4 million to the Perron Group

The largest agency negotiated real estate transaction of any asset class in Australia post the GFC

AUSTRALIA, THURSDAY 17 MAY 2012 – In a transaction negotiated by Jones Lang LaSalle, the Perth-based Perron Group, privately owned and controlled by Founder and Chairman Lloyd Stanley Perron, has entered into unconditional contracts for the sale of a 50% ownership stake in three of Centro Retail Australia’s flagship regional shopping centres for AUD690.4 million on an average yield of 6.1%. CRF will retain the residual 50% interests and CRF will provide property management, development and leasing services from its existing fully integrated management platform.
The assets include Colonnades in South Australia, The Glen in Victoria and Galleria in Western Australia (the ‘Portfolio’) and the transaction reflects a +3.7% premium to book value (pre transaction costs).
The sale of the Portfolio has occurred just a month after CRF announced the appointment of Jones Lang LaSalle to initiate discussions with a select group of investors in order to seek capital partners to jointly own these higher value shopping centres. Importantly, this market leading outcome enables CRF to strengthen its balance sheet and provide liquidity to be able to invest back into these and a number of other shopping centre development projects.
Australian Head of Retail Investments for Jones Lang LaSalle, Simon Rooney who brokered the sale on behalf of CRF said, “This significant sale outcome is a continuing example of large A-REITs strategically recycling capital by selling down part or whole shares in core regional assets at book value or a premium to book value.”
In the 15 years leading up to the GFC, A-REITs were predominately ‘net purchasers’ (i.e. total volume of regional shopping centres purchased by A-REITs minus total volume sold) of regional shopping centres by an average $242 million per year; however, in the past three years, they have been ‘net sellers’ of regionals by an average of $528 million per year. This represents the longest consecutive period in nearly two decades where A-REITs have sold more regional shopping centres than they have acquired.

“Despite having stabilised business platforms, A-REITs are operating in a capital constrained environment and are dealing with share prices which are at discounts to net tangible asset values. Consequently, raising fresh equity through the share market would only dilute share prices further and selling down interests in assets gives an opportunity to fund expansions, development opportunities, retire debt and/or fund share buybacks.”
“What it also demonstrates is that investors are recognising that this is a window of opportunity to secure strategic exposure to the dominant, core regional shopping centre market that traditionally is rarely traded. Increasing demand particularly by domestic wholesale, offshore sovereign and pension funds and in this case, major private investment groups, has seen prices trend upwards over recent years,” said Mr Rooney.
This upward pressure on prices in the regional shopping centre sector since the GFC is detailed in Graph 1. As can be seen, in late-2009 and early-2010, Westfield Whitford City (50% interest) and Joondalup were sold at 5% and 2.9% discounts to book values, respectively. The recent transactions of Westfield Doncaster (25% interest), Northland (50% interest) and Myer Centre Brisbane (50% interest) in late-2010 through to early-2012 were sold in line with book values. The CRF outcome is a premium of 3.7% above current book values (pre transaction costs), reflecting an increased level of demand for exposure to this sector.

“For investors, we believe that this is a strong window of opportunity to obtain partial and/or whole interests in quality Australian regional shopping centres that will probably only be open for another 12 to 18 months until other sources of funds become more available and/or the A-REITs recap again. Beyond this window, we are likely to see a much more normal period of very few prime regional shopping centre opportunities emerging in any given year,” said Mr Rooney.