Cashing up?

Lang Walker, Marc Besen, Ralph Sarich and Kevin Seymour are real estate moguls have cashed up and off-loaded their property holdings, perhaps ringing the final round of this bull run.

But the biggest real estate mogul of them all, Frank Lowy's Westfield Group, isn't selling up and cashing out. No, it has simply "boosted its reserves for future developments by an additional $US550 million ($717 million) through the sale of eight "non-core" US shopping centres."

Goldman Sachs JBWere's property analysts said they felt the divestment of lower quality centres, largely outside of key geographic clusters, and with minimal redevelopment potential, is an effective strategy by Westfield to take advantage of record low cap rates reflected in a $US31 million gain on the sale.

And the Australian buyers of these "lower quality centres" are tickled to get them and off load them on unsuspecting mums and pops via thier retirement funds. No, strike that. That's not what they're doing at all. This is what they're doing:

Centro Properties, which is buying seven of them, will launch a new $1 billion property syndicate, open to retail and wholesale investors, to bundle those seven with another 13 US shopping outlets including Centro Watt and the former Kramont assets, spread across the US from Los Angeles to Connecticut.

The deal, conducted through JP Morgan, will fuel the race among Australian property trusts and syndicates looking overseas for assets to boost funds under management.

It will bolster Centro's funds under management to $10.6 billion, spread across its managed syndicate business, the separately listed Centro Retail Trust and Direct Property Fund International.

A total of $390 million in equity will be raised by Centro from the Direct Property Fund International taking out $197 million worth of the syndicate, Centro Retail Trust with $78 million and the balance largely from retail investors.

Centro's chief executive Andrew Scott said that, ... "This deal will provide Centro with significant future growth with value-adding potential."

"We have been in due diligence on the properties for a while and believe we can add value.... (Westfield sells small US centres)"

That leaves Westfield with even more cash and more "what now?" issues.

Westfield ponders growth options as sales weaken:
In a recent research note, Macquarie Equities said Westfield faced challenges over the next few years as earnings growth might not keep pace with the countervailing momentum of foreign exchange and interest rates reverting towards spot prices.

"The self-sustaining model is largely intact and 5-6 per cent operational growth over the medium term is highly achievable in our view," the broker said. "However, it is not until the 2009-2010 financial year that this growth flows through to underlying distribution growth."

Large asset swaps or the launch of a wholesale fund whose proceeds were reinvested in development would put those estimates at risk, the broker said.

In its latest report on Westfield, JPMorgan said that the group was "asset rich at a time that global demand for investment property is unprecedented".

"As a result, the third-party managed funds option remains available to Westfield if it chooses, which could boost return on equity and provide an alternative funding source."

The speculation came as Westfield released it first quarter sales results, which showed conditions within the retail sector remain tough, particularly for department stores.

For the three months to the end of March 2006 department store sales were a negative 2.3 per cent, while speciality stores including mini-majors such as Priceline chemists had a 3.1 per cent rise in sales.