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CHATTANOOGA, TN-CBL & Associates is selling 90% of its ownership interest in 51 power and community centers for total consideration of $516 million. The interest is being sold to a new joint venture it has formed with Galileo America REIT, the US affiliate of Australia-based Galileo America Shopping Trust, an entity of Galileo Funds Management that expects to be listed on the Australian Stock Exchange in the fourth quarter. CBL will have a 10% interest in the joint venture.

The 51 centers will be sold in three tranches: October 2003, January 2004 and January 2005. Net cash proceeds to CBL are figured at $387 million, with $255 million received in first tranche, $56 million in the second and $76 million in the third. The joint venture will assume approximately $99 million of existing debt on 10 of the properties and CBL will retire $53 million in loans associated with two properties. The joint venture will obtain additional debt financing of approximately $160 million at the closing of the first two tranches.

The sales are expected to generate a combined gain for CBL of $99 million, of which $72 million will be reported in 2003, $22 million in 2004 and $5 million in 2005. The taxable gain should be much less, however, as the company plans to reinvest net proceeds in new developments, future mall acquisitions and other retail real estate opportunities.

A committee that includes two members from CBL, two members from Galileo and one independent member will manage the joint venture, while CBL will be the exclusive manager for all of Galileo’s properties in the US. As such, CBL will be entitled to management, leasing, acquisition, disposition and financing fees. CBL may also earn up to an additional $8 million based upon certain leasing and occupancy goals for the tranche I properties during the first six months from closing. During 2002, 47 of the 51 properties being sold generated $41.2 million in net operating income.

Neil Werrett, managing director of Galileo Fund Management Ltd, says the transaction affords his company the opportunity to invest in power and community centers in the largest retail market in the world. “This portfolio has a track record of strong occupancy and growth and benefits from diversity in its tenant base and market locations as well as possessing an attractive lease expiry profile and market demographics,” he says.

In its March annual report, CBL reported owning a controlling interest in 61 community centers with a combined leasable area of 5.1 million sf and an average occupancy of 94.7%.

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