Property group Scentre Group [ASX:SCG] has been retained by analysts at Goldman Sachs as a buy. This has lifted the company’s price target to $4.72 per share as a result of their decision to scrap their two Sydney office spaces to Blackstone Group.
The deal is expected to make $1.52 billion.
While shares rose by 1.5% on the news yesterday, at time of writing the value has dropped again by 1.76% to $3.90.
Scentre’s cunning plan
According to the broker’s note, analysts believe the stock to be a 10% premium to book value. They also estimate that Scentre’s recently announced plans for an $800 million share buyback in August will add 2.9% to its funds from operations (FFS).
Scentre Group CEO Peter Allan said of the transaction:
‘The transaction price represents almost $800 million in additional value created compared to our investment cost and has generated an unlevered internal rate of return of over 16% per annum for the Group.’
The decision to sell the two office towers is part of long-term plan to sell ‘lower quality assets’, receiving less foot traffic (thanks in large part to the online shopping culture) to both lift its return on equity and repay much of their existing debt.
Is this enough for investors?
Scentre still forecasts a strong 2019 dividend at a total of 22.6 per security, placing it on a 5.7% yield. This may yet keep investors looking to maximise profits in the long term.
The group has now released $2.1 billion of capital to pursue further ‘strategic objectives’ as a result of a separate sale last month worth $575 million.
Scentre will retain ownership of the two towers.
Editor, Money Morning
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