The Scentre Group (ASX: SCG) share price rose 1.5% today as it announced a large asset sale and a big share buy-back.
Scentre Group owns and operates 41 Westfield shopping centres in Australia and New Zealand, with Scentre’s interest valued at $39.1 billion, many of the shopping centres are owned in partnership with property investment institutions. According to Scentre Group, more than 535 million visits were made to its centres in 2018.
Scentre’s Asset Sale
Scentre announced that it has sold its Sydney CBD office towers to funds managed by Blackstone for $1.52 billion. The disposal will be effected by way of Scentre granting a 299-year leasehold interest to Blackstone over the office components. It will still retain ownership of Westfield Sydney and Sydney Tower.
With the cash raised from the sale and the joint venturing of Westfield Burwood, the shopping centre business has released $2.1 billion of capital to pursue its objectives.
One of the things that Scentre is going to do is launch a $800 million share buy-back which will increase its return on equity (ROE) while maintaining a “very strong balance sheet”.
Scentre Group CEO Peter Allan said: “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.”
Scentre will initially use the proceeds to repay debt. However, the transaction is expected to be dilutive to funds from operations (FFO) in 2019 by approximately 0.4 cents per share, which doesn’t take into the $800 million buy-back.
The forecast 2019 distribution remains unchanged at 22.6 cents per share, which represents a distribution yield of 5.7%. That’s not bad for a real estate investment trust (REIT) considering the yields of most other REITs have been compressed in recent months.
However, I think I would much rather buy shares of the reliable businesses in the free report below instead because I have concerns surrounding the growth of online shopping and what that will do to the value of Scentre’s shopping centres.
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