This article is from the Australian Property Journal archive
CENTRO tried to drum up last Friday with talks of potential private equity deals, but some analysts are unconvinced as the group and Centro Retail Trust handed down a mammoth $2.92 billion loss in the 2008 fiscal year.
And there are also concerns that Centro will run out of money at the end of this month if the group cannot secure liquidity.
But at a press conference last Friday, chief executive Glenn Rufrano said a few months ago private equity and government sovereign related investment funds held talks with the group – but he was unable to elaborate whether the discussions have gained momentum.
In addition Rufrano also said the sale of $6.7 billion of assets first announced in January this year are progressing – many properties were recently advertised on the market even though the group had opened a “virtual data room” in January.
But some analysts were not convinced and expressed concerns over Centro’s liquidity which has $60 million remaining of a $145 million facility, to last until September 30.
In a research report, JPMorgan said the equity injection/recapitalisation at the group level now appears a long-shot.
“Are there any parties still discussing options with CNP at the group level? At the midyear CNP noted that: data room was open; expressions of interest had been received; and that management presentations were ongoing.
“It’s difficult for CNP to update the market here, but given 6 months have passed we assume that any interest that might have been there has petered out,” JPMorgan said.
Meanwhile an analyst who did not with to be name said “If you ask me over a month ago what I thought about Centro, I would have been optimistic… but today’s result sounds like things are getting worst,”
Centro last Friday has handed down a loss of $2.05 billion and CER a loss of $868 million for the 2008 fiscal year – the largest loss in a fiscal year in Australia listed property history since A-REITs started in 1971.
Centro recorded property revaluation losses of $1.20 billion; asset impairments and write offs of $772 million; unrealised derivative losses of $181 million; costs associated with restructuring and refinancing loans was $130 million and other non-cash AIFRS items totalled $19 million.
Meanwhile CER’s result included $883 million write-down of property investments and a $317 million write off in its in Super LLC.
Rufrano, formerly the head of New Plan Excel, said Centro’s purchase of his company was not a mistake he added that it was an excellent platform.
But Centro only had a third of its 665 properties in the United States independently revalued with the remaining revalued by directors – the portfolio was worth $US12.8 billion – down from $US13.9 billion over the last 12 months.
Rufrano defended the decision to only revalue a third of the portfolio, adding that there was not enough time to revalue the entire portfolio – not because the group was trying to hold back from revealing the true extent of falls across the entire portfolio.
On the other hand in Australia where the assets values increased, half of the 129-property portfolio was revalued at $9.3 billion – up from $9.2 billion in the 12 months.
Overall, book gearing rose 47.4% to 72.8% and look through fell slightly from 75.2% to 73.9%. The total group debt currently stands at $17.36 billion of which $8.32 billion is current and $6.80 billion is non current – Centro’s current liabilities total $5.24 billion; CER total $2.30 billion; Centro America Wholesale Fund total $622 million.
Centro’s lenders include five US banks; a syndicate of eight banks in Australia, Asia and Europe; 12 insurance companies and the US noteholders.
For the year to June 30, earnings rose 8.8% to $570.7 million underpin by services business income which grew 28.2% as a result the group spinning off assets into managed vehicles. At the same time, property investment income fell 95.1% in Australia to $5.6 million and in the US down 37.4% to $28.8 million.
But looking ahead, Centro admitted to Australian Property Journal that its cash cow – funds management revenues are expected to fall following the sell off of assets and wind up of the Direct Property Fund; The Direct Property Fund International; Centro Australia Fund; CAWF; and some of the Centro MCS syndicates.
So far Centro has wound the Centro MCS 2 syndicate following the sale of the sold asset the Charles Street Plaza & Adelaide Central Car Park for $47.68 million – approximately 11% below the December 2007 valuation of $53.8 million.
But Rufrano and his team drummed up the forecasts for the year ahead, citing 3.3% growth in US GDP in the second quarter – a significant increase over expectations of 1.9% growth and Centro’s US portfolio only reported a 300,000 sq ft of defaults and bankruptcies.
But analysts said the growth in the US GDP was predominately driven by exports, not consumer spending.
According to Commerce Department, sales imports which are an indication of spending fell in the quarter which means Americas are spending less.
Rufrano also said the group are working with lenders to refinance short term liquidity before the end of September after earlier warning the market that there was a possibility the company may longer be able to trade as a going concern due to its lack of short term credit facilities.
“The group believes that, in particular given the current difficult capital market conditions, an acceptable proposal capable of being implemented by December 15 is unlikely to be forthcoming,” Centro told the market last month.
Analysts said this is because there are talks of a next level of debt defaults coming from the Prime Alt A and A markets.
“If you think the subprime market was big and it was… the sub prime collapse has so far cost $400 billion globally.
“Whilst the number of Alt A and A loans are fewer than subprime, the pool of money in each facility is so much bigger in dollar terms,” analyst said.
The subprime market accounted for 15% of loans, Alt A and A account for between 25-30% of loans.
Centro shares closed 1 cent lower at 17.5 cents and CER shares closed 0.005 cent lower at 24.5 cents.
Australian Property Journal
