Retail space in race for cash, but will Scentre Group be next?

Retailers are also thirsty for cash but likely see a move to raise equity as one that could put them on the back foot over rent negotiations with their landlords.

After the $1.15bn equity raising by Lendlease announced on Tuesday, many are now turning their attention back to Scentre Group which they believe is the next most obvious candidate for a cash call to investors in the real estate space.

Lendlease announced it was selling shares at $9.80 each, an 8.2 per cent discount to their last closing price of $10.68, to strengthen its balance sheet, as it wrestles with work stoppages at its construction sites overseas due to COVID-19 restrictions.

Morgan Stanley, Goldman Sachs and UBS are working on the deal and it comes after DataRoom reported this month that banks had been sounding out the market about an equity raising for Lendlease worth about $1bn.

A raising for Lendlease, which has projects in international cities such as Milan and London, not only protects its credit rating but prevents any projects in its $100bn-plus development pipeline from needing to be mothballed.

Expectations are that investors will back the raising and shares may even rally once the stock resumes trade.

The company said any transaction involving the sell down of revenue from apartment settlements in its 1 Sydney Harbour project had not yet been finalised and some questioned whether such a move could now be less imminent.

With Lendlease raising and shopping centre landlords SCA Property Group and Charter Hall Retail REIT, which are most strongly positioned with much of their revenue coming from supermarkets, both tapping the market, experts believe that Westfield shopping centre owner Scentre Group will need to tap the market because of its debt level of almost 35 per cent.

The thinking is that listed mall owners are hesitant to do so while trying to stare down their tenants amid rent negotiations for the COVID-19 disruptions.

Alternatively, retailers are also thirsty for cash but likely see a move to raise equity as one that could put them on the back foot over rent negotiations with their landlords.

It would not be until a deal has been reached between both parties they establish how much in fact is needed.

Department store Myer has signalled it will open stores next month as it remains in negotiations with its lenders and landlords.

Premier Investments, meanwhile, is thought to be in the strongest position of all the apparel retailers.

The group, which controls The Just Group, with retailers such as Peter Alexander and Just Jeans, is understood to be in a position where it can hand back about two thirds of its portfolio where its lease agreements are shortly due to expire.

On top of that, financiers are unlikely to be placing pressure on retailers and landlords to pay their loans right now, given their reluctance to be handed the keys to run the businesses themselves.

Some say that tenants, in some cases, are asking for rents to be discounted by as much as 50 per cent.

Other shopping centre landlords that may also need to raise are Unibail-Rodamco Westfield and Vicinity Centres.

For Vicinity, if its shopping centre values fall, its debt levels would reach about 30 per cent, which some say is an uncomfortable level for the group.

Dexus Property Group and Mirvac Group will no doubt be relieved they embarked on major equity raisings last year, but that does not necessarily rule out the groups as equity raising candidates further down the track as the fallout from negotiations with office as well as retail tenants are fully felt.

Stockland did not raise equity last year so its next moves will be closely watched. Neither did Charter Hall, although it effectively has no debt.

During its full-year results, Scentre Group said its net debt was $12.9bn, and the thinking is that if it tapped the market, it would be for about $1bn.

Should Scentre’s property values fall further, it could lose its AAA rating.

The company with $39.9bn of assets has a market value of $10.85bn.

In February, Scentre posted a $1.2bn net profit.