Struggling shopping mall operator Centro Properties Group said Tuesday it has agreed to sell its 588 U.S. malls to New York-based Blackstone Group LP in a deal valued at $9.4 billion.
The acquisition is Blackstone's largest since its $20.1 billion takeover of Hilton Hotels Corp. in 2007 and shows confidence that the weak retail market in the U.S., where unemployment is hovering above 9 percent, will improve.
Centro, which is weighed down by massive debt including $8 billion from its U.S. malls, also announced a plan to pay off its creditors by giving them ownership of most of its Australian shopping malls.
Lower-ranked creditors and ordinary shareholders would be left with about $100 million.
"We have previously said that the capital structure of Centro is unsustainable in its current form," Centro chairman Paul Cooper said in a statement.
The deal, if approved, "will return Centro to a positive equity position and potentially allow Centro to return some value to its stakeholders," he said.
Centro, based in Melbourne, Australia, said the $9.4 billion sale price was a 1.3 percent discount to the book value of the malls at Dec. 31.
Centro said it was also in discussions with Centro Retail Group, Centro Australia Wholesale Fund, Direct Property Fund and other Centro syndicates to create a single portfolio of Australian shopping malls once the U.S. assets sale was complete.
The cancellation of Centro's debts is contingent on lenders accepting the amalgamation of the Australian funds plus stakeholder approvals once the details of the transaction are finalized.
Securities of Centro Properties were down 10 percent on the Australian stock exchange.
Many of Centro's U.S. properties are shopping centers anchored by grocery stores, which have been more resilient to rising vacancy rates than other types of commercial properties, said Joseph French, national director of retail for commercial real estate services firm Sperry Van Ness in New York.
The sale of large commercial property portfolios in the U.S. all but came to a stop after the financial crisis hit in late 2008 and credit dried up.
Commercial property sales started to become more common last year, with the apartment sector leading the way. Now retail property sales are starting to pick up.
All that bodes well for private equity investor Blackstone, whether it decides to hold onto the properties and collect management and lease fees, or look to sell.
"Their options are all good, whatever they decide to do, hold or sell," French said. "The portfolio has the kind of product that people are looking to buy today."
A Citigroup Global Markets report released on Monday said the U.S. Centro properties were 88 percent occupied as of Dec. 31.