This article is from the Australian Property Journal archive
SCENTRE Group has offloaded three Sydney CBD office towers to US funds giant Blackstone in a $1.52 billion deal, and will begin an $800 million share buyback in August.
Blackstone will take a 299-year leasehold interest for the office towers at 100 Market St, and 77 and 85 Castlereagh streets.
Australia’s largest retail landlord will retain ownership of Westfield Sydney and Sydney Tower.
“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 securityholders,” Scentre chief executive officer, Peter Allen said.
Scentre brought in Perron Group as a joint-owner of Westfield Burwood in Sydney’s west last month in a $575 million deal.
“Our development of the Sydney Office Towers in 2011 and ongoing investment until now has created significant value for securityholders. The transaction price represents almost $800 million in additional value created compared to our investment cost and has generated an unlevered internal rate of return of over 16% per annum for the group,” Allen said.
The transaction is expected to be dilutive to funds from operations for 2019 by around 0.4 cents per security. Forecast distribution for 2019 remains unchanged at 22.60 cps.
Proceeds from the transaction will initially be used to repay debt and redeployed towards the buyback. Allen said the security buyback would allow the group to enhance its return on equity while maintaining its very strong balance sheet position. The security buyback program will commence following the group’s half-year results announcements due on 22nd August.
According to Cushman & Wakefield’s new Marketbeat report, while a slow down in tenant demand has coincided with the recent economic softening, the Sydney CBD is “well positioned to weather any further economic softening with low vacancy, compressed floor space ratios and high pre-commitment in the limited new supply”.
Landlords have continued lifting face rents given limited supply additions and with average incentives being at their low point. Prime gross effective rents have grown 9% year-on-year to $1,040 per sqm.
The next major round of office stock is tipped to push Sydney office vacancies up to 6.3% by December 2021, according to m3property, but rents will continue on their growth path.
