centro on demand

Some more good news out today.

By KRIS HUDSON

Blackstone Group LP has jumped into the bidding war for Australian shopping-center owner Centro Properties Group, intensifying what is likely to be one of the largest property takeover battles of 2011.

Blackstone, among the world's largest buyout firms with $100 billion under management, made a preliminary offer known as an "indicative bid" by the Dec. 17 deadline set by Centro, according to people familiar with the matter.

The size of Blackstone's bid couldn't be determined Tuesday. But the buyout giant primarily is interested in Centro's 600 U.S. properties, these people say.

The properties, located throughout the country, consist of strip malls and other non-descript neighborhood shopping centers anchored by grocers or discount retailers, like Kroger TJ Maxx and Marshalls. Centro valued its U.S. portfolio at $9.5 billion at the end of its fiscal year on June 30.

Centro also owns 112 malls in Australia and New Zealand.

Values for U.S. strip centers have rebounded from their lows of the recession but have yet to fully recover. Green Street Advisors Inc. estimates that the average U.S. strip center suffered a 40% decline in value from the middle of 2007 to the middle of 2009. Since then, it has recovered roughly half of the lost value, according to Green Street.

Melbourne-based Centro was one of the first major real-estate companies to get into trouble in the downturn, failing to refinance $3.4 billion in debt that matured in early 2008. Since then it has been kept on life support by its creditors.

Lately, 25-year old Centro has become the symbol of another trend: the return of deal making in commercial real estate. Although rents and vacancy trends remain weak in many markets, investors have been bidding up values of many properties in anticipation of a recovery. Real estate returns are also looking more attractive in a low interest-rate environment.

Centro is one of the biggest assets currently on the block, making it especially attractive to companies like Blackstone that have a lot of money to put to work.

A joint bid for the entirety of Centro also has come from a consortium led by U.S. real-estate investor NRDC Equity Partners LLC and Australian investor Lend Lease Corp., people familiar with those talks say. That bid is in excess of $16 billion, these people say.
Rival Bid Emerges

In addition, entities affiliated with shopping-center mogul Chaim Katzman's Gazit Globe Ltd. have made separate bids for Centro's U.S. and Australian properties, people familiar with the talks say. Gazit teamed with Colonial First State Global Asset Management to offer $7.3 billion for Centro's Australian and New Zealand properties, they say.

And Gazit's U.S. affiliate, Equity One Inc., paired with Apollo Global Management LLC to make a joint bid for Centro's U.S. operations, though the amount of that bid couldn't be determined.

Centro is being advised by UBS AG, Moelis & Co. and J.P. Morgan Chase & Co. Several smaller suitors, such as Australia's Charter Hall Retail REIT, have made offers for pieces of Centro's Australian and U.S. empires rather than the whole, these people say.

Centro's fate is complicated by its intricate capital structure, which includes dozens of lenders, cross collateralization and properties owned by syndicates of thousands of Australian mom-and-pop investors.
Bankruptcy a Possibility

There remains a chance that Centro ends up in Australian bankruptcy if it can't find a buyout or recapitalization deal that pleases its lenders. Australian bankruptcy, called administration, mandates liquidation rather than reorganization.

Blackstone has emerged as a major player in many of the biggest deals this year. In the hotel business, the firm participated in a $3.9 billion buyout of bankrupt hotel chain Extended Stay America Inc.

In retail, Blackstone was part of the group that took General Growth Properties Inc. out of bankruptcy protection and also partnered with mall Glimcher Realty Trust this year to buy malls.

The pursuit of Centro's U.S. properties is a logical one for Blackstone. The buyout firm was among those that took an initial look at Centro in early 2008 when Centro first opened its books to would-be acquirers.

Centro's occupancy slipped to 88.3% in the year ended June 30 from 88.7% in the previous year. Its U.S. net operating income declined by 4.2% in the year ended June 30.
Mr. Scott's Buying Spree

Since late 2007, Centro has struggled to refinance and pare its $18.4 billion debt load. It was amassed during the boom years as former Chief Executive Andrew Scott went on a debt-fueled buying spree that made company one of the world's largest retail landlords. Centro's U.S. portfolio carries debt of $8.1 billion.

Mr. Scott, who was ousted in early 2008, amassed the company's U.S. portfolio by purchasing real-estate investment trusts New Plan Excel Realty Trust, Kramont Real Estate Trust and Heritage Property Investment Trust Inc.

Write to Kris Hudson at [email protected]