REIT sells $968M portfolio.

Continuing a trend of major property trades this year, yet another large portfolio transaction closed this week with the $968 million sale of 69 shopping centers owned by New Plan, the New York-based shopping center REIT, to Galileo America LLC, a joint venture between an Australian property trust and CBL & Associates Properties.

Coinciding with the deal, CBL announced that it would sell its 8.4% equity stake in Galileo to its joint venture partner, Australian property trust, Galileo Shopping America Trust, for $100 million, as well as Galileo's interest in two shopping malls in Alabama and Pennsylvania. New Plan will replace CBL as an equity partner and received a partnership interest worth $40 million, an amount that was deducted from the sale price of the transaction. The REIT will have a 5% interest in Galileo, which now will own 121 shopping centers totaling 16.7 million s/f.

New Plan also is acquiring CBL's asset and property management rights to the portfolio for $47.5 million, a figure that includes the $7 million purchase of property management rights beginning in 2008 for nine shopping centers currently under third party management.

"We have a 20 year contract for management," said New Plan's CEO Glenn Rufrano in a conference call on July 20, the day the deal was announced. "These fee streams will increase as new assets are acquired."

Rufrano indicated that the sale was motivated by three principal factors--the desire to maintain and maximize the value of New Plan's management and operational infrastructure, to increase its financial flexibility, and to provide long term equity for growth. Based on projected NOI for 2006, the portfolio sold at a 7.4 cap rate, high by today's standards, and perhaps the result of difficulty in finding a buyer who could create a deal that fulfilled the three aforementioned criteria.

"It's easy to create a strategy, but it's hard to execute," Rufrano said during the conference call. "We felt that recycling capital was the best way to create financial flexibility ... we felt we had to do that with a joint venture to maximize the value of our infrastructure."

According to statements released by New Plan, the REIT will allocate $439 million of the sale towards paying down existing debt. Another $316 million will be paid to investors to temporarily maintain the current dividend. New Plan expects to reduce its annualized dividend from $1.65 per share to $1.25.

Using the income it receives from the new venture, New Plan will fund development and redevelopment projects it is working on.

"We plan to reinvest proceeds [into our] redevelopment program which has embedded $250-$300 million of projects," Rufrano said. "We also will allocate money towards new development activity ... we expect to announce four to six projects this year."

Galileo has expanded its holdings much the same way as it acquired its original assets. Galileo entered the US market in November 2003 by acquiring 51 shopping centers from CBL. CBL retained a 8.4% equity interest as well as rights to manage the properties as part of that transaction. New Plan's disposition comes just weeks after two major portfolio trades. In late June, DRA Advisors, a manager of real estate investment funds for institutional and private investors, acquired a portfolio of 137 office buildings for $1.7 billion from public office REIT, CRT Properties.

That deal, in turn, came just a few weeks after industrial REIT giant, Catellus, sold its vast portfolio of land, warehouses and distribution centers to fellow REIT, ProLogis, for $3.6 billion. The deal made ProLogis the biggest industrial REIT in the world with over 350 million s/f in over 2,250 facilities owned, managed and under development in the United States, Europe and Asia.