CFS Retail Prices Biggest Australian Property Trust Bond Sale Since 2006

CFS Retail Property Trust, a real estate trust that invests in shopping centers, sold A$450 million ($438 million) of bonds in the biggest domestic debt issue by an Australian property company in more than four years.

The trust priced A$160 million of floating-rate notes due in May 2014 to yield 160 basis points more than the bank bill swap rate, according to an e-mailed statement from Australia & New Zealand Banking Group Ltd., which helped manage the sale with Commonwealth Bank of Australia. It also priced A$290 million of fixed-rate notes due in May 2016 to yield 185 basis points more than the swap rate, the statement said.

“Property trusts are trying to reduce their bank exposures and arrange longer-term debt, which is more likely to be obtained from the bond market,” John Sorrell, who helps manage about A$14 billion of fixed-income assets as Sydney-based head of credit at Tyndall Investment Management Australia Ltd., said in a phone interview. “There’s still pent-up issuance demand, so the strong primary sales volume is set to continue.”

Most Australian real estate trusts have returned to profit after exiting money-losing overseas investments and raising capital following a period of surging debt costs and plunging property values. REIT balance sheets are now “historically strong” after they raised more than A$18 billion of capital in 2008 and 2009, Moody’s Investors Service said in August.

GPT, Stockland

CFS Retail’s sale is the biggest since GPT Group, the country’s third-largest property group by market value, sold A$700 million of fixed- and floating-rate bonds in March 2006, according to data compiled by Bloomberg. Australian real estate investment trusts have issued A$1.1 billion of domestic bonds this year, the data show.

Stockland, Australia’s biggest diversified property group that’s rated A- by Standard & Poor’s, one notch lower than CFS Retail, sold A$300 million of five-year notes in December. The 8.5 percent bonds were priced to yield 270 basis points more than the benchmark swap rate, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

Sydney-based CFS Retail, which reported net income of A$315 million in the year to June 30, said last month it’s planning to buy four shopping malls owned by Direct Factory Outlet in Australia. The trust will fund the purchase through a A$540 million share sale, it said in a statement to the Australian stock exchange at the time. The company will use funds from today’s bond sale to refinance debt, according to a statement to the stock exchange.

To contact the reporters on this story: Lisa Pham in Sydney at lpham14@bloomberg.net; Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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