Westfield owner Scentre eyes $1.8bn raising to ease Covid squeeze

Scentre, owner of the local Westfield empire, is riding a share-price lift on the back of expectations it could launch a major equity raising.

Scentre shares have risen from $1.99 two weeks ago to close at $2.27 on Thursday. Picture: NCA NewsWire/Gaye Gerard

Shopping centre landlord Scentre, owner of the local Westfield empire, is riding a share-price lift on the back of expectations it could launch a major equity raising.

Scentre shares have risen from $1.99 two weeks ago to close at $2.27 on Thursday, with senior sources saying some of the institutional buying was on the back of expectations that an entitlement offer could be launched as early as next week with minimal discount.

The prospect of Scentre undertaking a major raising in the order of $1.8bn has been widely canvassed by investment bankers, and market players speculated that UBS and Morgan Stanley were closest to the shopping centre group.

A company spokeswoman said it did not comment on market speculation and Scentre chief executive Peter Allen denied that issuing equity was part of the group’s plans when delivering the first-half results last month.

Scentre Group CEO Peter Allen.

However,bankers said it was a question of “if not when” the shopping centre owner would seek to raise capital and questioned whether an even larger raising may be required to offset the once-in-a-generation fall in top class mall values. Scentre has taken a hard line on rental collection and had been in dispute with Mosaic Brands and Strandbags, shuttering the outlets before reopening them days later, with some suggesting the dispute had ended in favour of the tenants as the shopping centre company took the issue off the table.

Other property groups have already recapitalised. Rival shopping centre owner Vicinity Centres in June raised $1.2bn via an institutional placement which helped it weather stage four restrictions in Victoria where it is heavily exposed. Development company Lendlease also raised $1.15bn as the pandemic struck its plans to build a wave of new precincts in major capital cities around the world.

A series of smaller real estate investment trusts have tapped the market but the depth of problems in large regional shopping centres, which are normally the best performers, is driving expectations of a balance sheet restructure.

The market for such large malls is effectively shut, with attempts by Lendlease’s unlisted APPF Retail fund to sell off major centres ­pushed back and expectations that top-ranking malls could lose a quarter of their value.

There is also diminishing institutional appetite for large malls in the wake of the coronavirus crisis, making it harder for asset sales to be used to cut back gearing.

Jefferies analysts Sholto Maconochie and Andrew Dodds said Scentre’s balance sheet “remains under pressure”.

They said it had resisted raising equity like several peers and its gearing was up to 38.4 per cent after $4.1bn of negative revaluations, although they noted it had increased liquidity of $4.4bn. “We estimate a further 10 per cent decline in asset values would see gearing increase to 42.4 per cent,” the Jefferies analysts said.

“Whilst Scentre was formed with gearing at 38 per cent and management may be comfortable with this, we expect equity investors won’t, and believe the balance sheet will need to eventually be addressed,” they added.

Citi analyst Adrian Dark is forecasting a $1.8bn equity raising.