Blackstone triumphs in bidding war for Centro Properties

The Blackstone Group has trumped private equity real estate rivals in the battle to acquire the US retail portfolio of Sydney stock exchange-listed property company, Centro Properties Group.

New York-based private equity and real estate giant Blackstone has been selected as the preferred bidder for Centro’s 600-property strong portfolio of North America retail assets for which it is expected to pay $9.4 billion, people familiar with the matter said. One of the rival bids was in the “mid-$8 billion” range, sources told PERE. 

Centro

The deal is one of the largest real estate investments since the global financial crisis and saw Blackstone beat the joint venture pairings of Morgan Stanley Real Estate Investing, Starwood Capital Group and Paulson & Co, as well as a JV between NRDC Equity Partners with AREA Property Partners, these people said. 

The $9.4 billion price is just $100 million shy of Centro’s book value at 30 June last year, the end of its financial year. Then, the properties, predominantly strip centres in 39 different states across the US, were generating net operating income decline of 4.2 percent and rental income decline of 2 percent. The properties were just 88.3 percent occupied. The deal is on behalf of Blackstone's $10.9 billion Blackstone Real Estate Partners VI fund.

Centro placed the assets on the market late last year as part of a wider competitive market process that could have seen the entire business broken up and sold off, as it sought to repay its debt load of A$18.4 billion (€13.65 billion; $18.9 billion). While the better-performing 112 asset strong Australian portfolio attracted core investors, it was the US assets that attracted opportunistic buyers.

PERE analysed the sale process in the February  issue. To read it, click here.

A sale to Blackstone at $9.4 billion would enable Centro to repay its US debt in its entirety while providing the company with more than $1 billion to help meet its Australian liabilities. A report by The Wall Street Journal said Centro’s Australian business would consequently be able to continue as a separate business.

Centro’s troubles began after it announced it had failed to refinance $3.4 billion of debt in 2008, prompting its share price to plummet more than 90 percent. It has since managed to convince its lender base to grant a number of maturity extensions.

Prior to the credit crunch, Centro was one of the more aggressive investors in retail real estate, particularly in the US where it paid steamy prices for assets including $5 billion for US REIT New Plan Excel Realty Trust in February 2007, just month’s before the crash. That deal inherited it 467 shopping centres in one fell swoop but the value of much of the assets fell meaning Centro was unable to meet its financing obligations.

Centro’s shares were suspended today ahead of an expected confirmation of the sale to Blackstone before Wednesday.

Zoe Hughes contributed to this article.