A KPMG independent expert report concluded the Centro Retail Trust and Centro Shopping America Trust proposed merger as fair and reasonable to investors.
KPMG concluded that CSF securityholders are likely to be financially better off following the merger whilst having a positive impact on share market trading of CER Securities.
If the merger proceeds FY2008 forecast pro-forma DPS will increase by 1.5% and the forecast proforma distribution for the full year ending June 30 2008 will be 9.64 cents compared to the forecast distribution of 9.50 cents for the same period if the merger does not proceed.
CSF securityholders are forecast to receive a cash distribution of 9.52 cents per CSF Security for the year ending June 30 2008, including a special distribution of 0.29 cents.
KPMG also said the longer term returns for both CSF and CER investors are expected to better off under the merger, as new CER provides a better platform to exploit opportunities available to the business.
Centro’s chairman Brian Healey said the boards of both vehicles have unanimously recommended that securityholders vote in favour of the merger.
“Centro is confident that approval of the merger by Centro Shopping America Fund and Centro Retail Trust securityholders is in both their best interests,” Centro’s chief executive Andrew Scott said. “The combined entity would be well placed to add value for its investors by capitalising on suitable growth opportunities in Australasia, the
If the merger proceeds, the new CER is expected to be the ninth largest Australian listed property trust with an estimated market capitalization of approximately $4.1 billion, and
A Merrill Lynch report said Centro Properties Group, the asset manager for both CER and CSF, would be the main beneficiary of the merger through the sale of lower quality
ML noted however, if the transaction does not go through, it could be detrimental to CNP.
ML said Centro’s reputation as a fund manager could suffer and its ability to sell down assets to CER going forward may be limited as CER could be put in the penalty box.
In addition, CNP may have increased trouble selling down NXL assets to third parties given investors could gain leverage from the fact CNP was unsuccessful selling $1.5 billion in assets at a 7% cap rate to its own subsidiary (purchased entire portfolio for 6.75%).
“Since the announcement investors have given us a clear indication of how they view the proposed transaction with CER trading off 7%, implying a 7% discount to CSF’s price prior to the announcement.
“We believe that although the pricing is attractive for CER, this transaction dilutes the asset quality and earnings growth profile of CER, while increasing its exposure to the weaker
“Our 12 month view on CSF is predicated on our outlook on CER, which we do not cover, hence our move to No Rating on CSF,” it concluded.
CSF and CER securityholders are set to meet on October 12 2007 to vote on resolutions to give effect to the proposed merger.
Australian Property Journal
