THE retail property arm of global investment manager Colonial First State is expected to undertake a capital raising to fund the $600 million purchase of four Direct Factory Outlet centres, throwing a lifeline to the debt-laden retail chain.
CFS Retail Trust is likely to announce tomorrow its plans to buy the Homebush DFO outlet in Sydney, the new South Wharf centre in Melbourne's Docklands and the Essendon and Moorabbin outlets in Victoria, from the chain's parent company, Austexx.
The fund was yesterday placed in a trading halt ''pending the announcement of a significant transaction''.
A Goldman Sachs analyst, Simon Wheatley, said CFS Retail would need to raise about $415 million if it wanted to maintain its present gearing ratio.
''Based on the speculated deal size of $600 million, if we assume that CFS wants to keep gearing unchanged, it is implied the company may need to raise about $415 million, which is reasonably sizeable,'' Mr Wheatley said.
He said there were a number of properties within the DFO portfolio which ''have some onerous underlying land rent arrangements'', contributing to CFS's decision to acquire only part of the DFO empire.
''We expect that CFS will cherry-pick the portfolio in order to avoid these assets, which are likely to be challenged for growth.''
CFS Retail's fund manager, Michael Gorman, and head of property, Darren Steinberg, were not available for comment yesterday.
Negotiations are ongoing and a collapse of the deal could still see the chain tipped into administration. But it will come as a huge relief for Austexx if it proceeds.
Austexx has teetered on the brink of collapse since August, requiring last-minute financial assistance from its lenders to complete its South Wharf development.
The company, which is owned by the Melbourne businessmen David Goldberger and David Wieland, owes creditors more than $1 billion.
Austexx has been seeking a buyer for its assets for the past six months as its debt woes mounted.
The mooted deal represents a departure from the traditional shopping centre layout CFS Retail is accustomed to. The fund owns some of the largest retail centres in the country.
Mr Steinberg said in August the group was interested in expanding into factory outlet stores as a business, but ''no transactions had been entered into with the Melbourne DFO group''.
However, CFS Retail has been keen to increase its assets under management, although it lost out last year in the battle for the $1.4 billion ING Retail Fund to Lend Lease.
Austexx will continue to operate its remaining DFO stores as it looks for buyers for its Cairns, Jindalee, Brisbane Airport and Canberra outlets. It also owns the former DFO site on Melbourne's Spencer Street.
SOURCE: The Sydney Morning Herald by Philip Wen and Carolyn Cummins
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