Westfield still to play its hand
Centro Properties Group finished last week extending its offer to unitholders in the AMP Shopping Centre Trust in Australia to 19 May, and with the likelihood of its ability to take control of the whole of the AMP trust’s portfolio still up in the air.
The AMP trust got an appraisal on Tuesday from Deloitte Corporate Finance Pty Ltd which was slanted in its favour through an emphasis on some features of the bid and of the merged entity as disadvantages, and a conservative view of advantages.
In the end, the appraisal won’t make much difference because the fate of the trust lies with a competitor and a handful of institutions, not with small shareholders more likely to be swayed.
11 institutions hold 83%
The top 2 unitholders are Centro and Westfield Trust, each with 19.9%, and AMP entities between them hold 20.5%. The next 8 are bank nominee holders. Together they hold 83% of the shopping centre trust.
It’s possible for AMP interests to take different viewpoints. The troubled head company, AMP Ltd, has an opportunity to sell a large asset, though it would look more keenly at Westfield’s $A1.80 than at Centro’s conditional scrip & cash offer, which had climbed to a value of $A1.66/unit by Easter. AMP Life, holding the other half of some of the shopping centre trust’s assets, could find Centro an acceptable partner & asset manager, especially if AMP Ltd doesn’t like the idea of buying back $A1 billion of assets through default rights. But AMP Henderson Global Investors won’t want to lose its management contracts.
For the AMP interests and for other institutions there are different tax implications which are likely to have a strong bearing on the outcome, especially the impact of capital gains tax gains & losses.
Some institutions started positioning their holdings in the listed AMP trust in February. AMP Ltd, which held 24.62% but made a major loss on its British investments in 2002, sold down to 21.55% in February, just after the shopping centre trust had strengthened its holdings in the Pacific Fair mall on the Gold Coast (by 4% to 44%) and the Macquarie Centre in North Ryde, Sydney (by 5% to 55%).
The shopping centre trust increased those holdings by taking up a 10% stake in a new unlisted fund which bought 40% of Pacific Fair for $A230 million and 50% of Macquarie for $A239.5 million.
At the start of the year the AMP trust’s unit price was around $A1.35-1.40. The Westfield purchase from institutions took it to $A1.80.
Centro lodged a full takeover bid for the AMP trust on 20 March.
12 months of ownership is an important factor in capital gains tax considerations.
Pure-play versus diversified
Some institutions may accept the Deloittes argument on the shape of the existing trust, as an entity dedicated to ownership of regional shopping centres, versus the shape of a more diversified new entity run by Centro. They will also be weighing up the possibilities in a Westfield takeover bid, not yet made, which could be for the whole of the AMP trust’s portfolio, perhaps including AMP Life’s interests, or for those parts not held by AMP Life, keeping AMP Life on as a partner in some centres.
A factor which is of wider interest is the difference between inhouse & outsourced management.
Deloittes makes something of the AMP trust’s higher portfolio quality and the flow-on impacts of that, less of Centro’s share price premium and higher earnings/security, which are largely attributable to the different management system.
Deloittes finds AMP trust a stronger investment alone
The AMP Shopping Centres Trust owns all or part of 9 regional shopping centres round Australia, now valued at $A1.59 billion, with asset backing at 31 March of $A1.40/unit, average premium/nta in the March 2003 year 4%, weighted average capitalisation rate 7.4%. Deloittes calculated that the merged entity would have 7.9% lower asset backing.
Centro has 3 regional centres, about 25 subregional centres, has increased the services business share of its total earnings to 11.6% (a mixture of property management, development & leasing and funds management) and has a syndicate business in which it generally takes a 25% stake in each fund plus the management role.
Centro’s portfolio value is $A1.7 billion, average premium/nta 24%, capitalisation 8.7%. Deloittes found the average subregional centre yield had firmed over the 5 years to December 2002 from 10.5% to 9.05%, to Centro’s benefit. Centro’s shares were converted to stapled securities in 1997 and distributions were effectively increased 11% in the June 1999 year, but were now in line with the sector average. Deloittes said there was no guarantee Centro’s future performance would benefit from further re-rating.
Gearing at the AMP trust ranges from 20-30%, at Centro from 30-40%, with a 40-60% range in Centro’s syndicates.
An important comparison that can’t escape the institutions’ eyes is the difference between specialty store sales at December 2002 — $A7805/m² across the AMP trust’s portfolio, an average $A7335 across the regional centre sector according to JHD Advisors, an average $A5772 across subregional centres according to JHD, and an average $A5680/m² across the Centro portfolio.
Not only is Centro weaker than AMP, it’s weaker than its own market’s average.
Deloittes calculated that the net result of turning management inhouse would be $A5 million/year, an income support arrangement – entered when AMP set up the shopping centre trust and running to 2005 – would benefit the merged entity by $A6 million in the next year, but debt refinancing would cost Centro more (an average borrowing cost of 6.4% at Centro, 6%at AMP).
Now that the AMP trust is in play, even an outright rejection of the Centro bid is unlikely to leave it as it is for long, especially with a Westfield presence on the register.
The 1st of the AMP trust board’s reasons for rejecting the Centro offer is the prospect of a superior offer – effectively asking the market to make a better bid, at least matching Westfield’s $A1.80/unit.
The market continues to expect rationalization of the listed property trust sector. In this case, a pure-play regional centre portfolio would become the top shelf of a diversified investor’s cabinet.
The unlisted AMP NZ Property Fund (now called the AMP Property Portfolio) owns 50% of the Botany town centre, Lynmall & Manukau Supa Centa. It sold the other 50% to the Australian listed AMP Diversified Property Trust last August for $NZ188.125 million.
Earlier stories: Westfield increases AMP trust stake, trust drops bombshell for Centro
Websites: Shopping Centres portfolio
Centro Properties Group
