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The Australians Are ... Here

Galileo America LLC, a U.S.-based joint venture backed by Australian capital, has emerged with 121 shopping centers totaling 16.7 million square feet after transactions with New Plan Excel Realty Trust and CBL & Associates Properties Inc., which were announced last night.

In a deal rumored for months, New Plan Excel will sell 69 community and neighborhood shopping centers to Galileo America LLC for $968 million--including $928 million in cash and $40 million in equity. The deal works out to a cap rate of 7.4 percent based on 2006-projected net operating income of the properties. Meanwhile CBL, which is likely to concentrate on regional malls, will cash out of Galileo America LLC, raising $100 million in the process.

The deal is similar to other joint ventures that Australian limited property trusts have formed with U.S. REITs, although, New Plan will retain a smaller ownership stake in the joint venture--5 percent--than in other deals. Regency Centers Inc., for example, has a 35 percent stake in a joint venture it owns with a Macquarie Bank-controlled limited property trust. Developers Diversified Realty Trust owns a 14.5 percent piece in its Macquarie joint venture.

Galileo America LLC was formed in late 2003 by CBL and Galileo America Inc., a U.S.-based REIT owned by Galileo Shopping America Trust, an Australian limited property trust. In a deal worth about $516 million, CBL contributed 90 percent of its ownership interest in 51 power and community centers to the trust. But as part of the just announced deal with New Plan, CBL will end its relationship with Galileo.

New Plan will purchase property and asset management rights to the Galileo America LLC's portfolio from CBL for $47.5 million. The joint venture, in turn, will buy out CBL's 8.4 percent equity interest. Overall, CBL will receive $100 million, a cap rate of 7.2 percent, according to a research report issued by UBS Securities Inc.

"CBL gets out of the strip shopping center business for a fair price and completes its transition to a pure-play middle-market regional mall owners," wrote Legg Mason REIT analyst David Fick at first glance. "The transaction looks logical for all involved."

For New Plan, the company raises a huge store of cash for reinvestment in its centers or another acquisition. It will also pay out a $3 per share special dividend to its shareholders when the deal closes. (Although it also has announced its intention to reduce its annual dividend from $1.65 to $1.25.) The deal has the added benefit of reducing its exposure to risky anchors. Of the 69 assets sold to the joint venture, 13 are anchored by Winn-Dixies or Kmarts, according to a report by Prudential Equity Group LLC REIT analyst Jim Sullivan.

Galileo is just one of several Australia-based entities with large U.S. retail holdings. Westfield Group owns more than 63 million square feet of retail space. Macquarie Bank has formed several limited property trusts that joint venture with U.S. REITs. Centro Watt is another limited property trust that has invested in the U.S. All have taken advantage of a huge pool of capital set aside in Australia for worker's retirements. Fund managers of these swelling pensions, which typically target real estate, have monies totaling almost $700 billion. Domestically, the funds have bought up most of the choice assets and are looking at international real estate for investment opportunities.

-- David Bodamer

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