Kimco, Australia’s Valad Announce Alliance
- Feb 05, 2008
Valad Property Group of Australia is expected to expand its investments into North America following the announcement of a strategic alliance with Kimco Realty Group, one of the United States’ largest shopping center owners and operators.The alliance will be focused on creating funds management and joint venture opportunities. As a sign of its commitment to the new relationship, Kimco bought $182 million, or A$200 million, in a convertible note issued by a subsidiary of Valad.Kimco said the convertible note had a coupon rate of 9.5 percent payable semi-annually and an option to convert the note at any time into Valad shares at a price of A$1.33.The actions drove Valad’s stock to its lowest point in five years in Australia, where traders had apparently been anticipating a possible takeover of Valad. By the end of trading in Sydney today, Valad had dropped 22 cents, or 18 percent to A$1, according to a report by Garfield Reynolds on Bloomberg.com. Reynolds noted the stock rose 16 percent on Feb. 1, its biggest jump, on speculation that Valad was a takeover target. Australian analysts had reportedly been worried about Valad, after other real estate companies like Centro Properties Group, which has large retail holdings in the United States, have been having problems meeting their financial obligations, according to a Reuters story today by Denny Thomas and Ilaina Jones. The Reuters story noted that one of the benefits of the Valad and Kimco alliance is that Valad is now deleveraged and should be able to seek out opportunities in a “vulture-like way.”Stephen Day, Valad’s executive chairman, said the deal strengthens the company’s balance sheet and “represents prudent capital management in light of current volatility in debt and equity markets worldwide.”Day added in a press release issued by his company that the investment by Kimco allows Valad to “repay virtually all debt which expires in the next 12 months.” He said Valad now has “the first power to pursue a number of high ROE (return on equity) transactions including co-investment in our funds and taking advantage of countercyclical market opportunities such as those being targeted by our A$1.1 billion UK Opportunity Fund. Our view is that well-capitalized groups which have the capacity to act will reap the benefits presented in volatile markets.”The U.K. Opportunity Fund acquired three London office properties with a total of 140,000 square feet last week for approximately U.S.$120.6 million, or 61.5 million pounds, according to a release from Valad. The acquisitions were among the first for the fund, which raised A$340 million, or approximately U.S.$305.4 million, in debt and equity since its first close on Jan. 25.David Henry, Kimco’s vice chairman, noted in the Valad press release that the two businesses, which he said have a relationship of at least two years, have many similarities and complementary components.“We both have ‘Capital Services’ businesses which are opportunistic, work with quality partners and are great ‘feeders’ to our core business areas,” he stated. “We also both have an interest in alternative asset classes such as self storage, as well as the creation of new managed fund products like our Mexican Land Fund or Kimco Income Fund II.”During Deutsche Bank’s 2008 Real Estate Outlook Conference last month in New York City, Henry said Mexico was expected to emerge this year as a huge growth story because there is such pent-up demand for retail. Kimco, which is the largest owner of retail centers in Mexico, had shifted some its development there, according to a Jan. 10 report by CPN. As of the end of the third quarter of 2007, 20 of Kimco’s 55 development projects were in Mexico.Day noted that most of Valad’s fund management business has been targeted at Asia Pacific and European wholesale investors. Valad has about A$20 billion in assets under management, including self storage facilities in Australia, offices in Australia and Europe and industrial and distribution properties in Australia.“The U.S. and Canadian investor market is currently untapped by Valad and represents an exciting opportunity for us,” Day stated.