INVESTORS delivered a Black Monday for Centro yesterday, stripping the group and its flagship fund of $5 billion in value.
Australia’s second largest shopping centre owner’s shares traded 76.1% or $4.34 lower yesterday to close at a basement price of $1.36.
Before resuming trade, Centro had a market capitalisation of $4.82 billion but by the end of yesterday’s trade, the group had a market capitalisation of $1.15 billion.
In addition, the newly stapled flagship Centro Retail Group also nosedived, closing at 57.5 cents, a fall of 40.4%. As a result the market cap fell to $1.94 billion from $3.36 billion.
After witnessing this, Centro rushed in and suspended applications and withdrawals on the Centro Direct Property Fund and Centro Direct Property Fund International.
Yesterday, investors and analysts worst fears were confirmed when Centro said it was unable to refinance $A2.5 billion in maturing facilities, and has managed to obtain an interim extension until February 15 2008.
In addition, Centro has $3.4 billion in debts maturing in less than 12 months and beyond 12 months, the group has a further $10.6 billion in maturing facilities.
Centro’s chairman Brian Healey revised the group’s operating distributable profit per security downward from 47 cents to 40.6 cents per security, assuming there are no external inflows to managed funds and increased margins on borrowings.
Healey softened the 14% fall in earnings forecast, by saying 40.6 cents represents a slight increase of 2.1% on the FY07 DPS of 39.8 cents per security.
“Recent turbulence in international credit markets, in particular in the
“In August, the Centro board and management took the view that the long-term refinancing of our debt obligations would be available with attractive funding terms through the US CMBS markets,” he added.
Centro’s chief executive Andrew Scott went on to say the group never expected or anticipate that the sources of funding that have historically been available would shut for business.
“Even following the onset of turbulence in international credit markets, we completed a $US300 million, 10 year CMBS issue was completed on reasonable terms, reinforcing our confidence that it would be more cost effective to wait for the debt markets to settle.
“Up until late last week, we were of the view that our short term debt obligations could be refinanced on a long term basis,” Scott continued.
One
The analyst said as well as the prospect of limited 2% growth, the surprise for investors was the fact that Centro will not pay a distribution for the first half of the year ending December 31 2007.
“Investors have lost total confidence,” he added.
Meanwhile, Healey has flagged several options for group to reduce the current gearing levels of 63%.
The options include asset sales, joint ventures and equity injections as well as a complete review of the overall structure. The restructure and refinancing is forecast to cost shareholders $40 million, which have been excluded from the FY08 forecast operating distributable profit.
One analyst said the restructure and asset sale is small comfort for shareholders.
“This will be a force sale, the assets have become very dilutive. In the
“They are not higher quality like those owned by
“Logically the sale will be the worst outcome. Centro bought the assets just eight months ago with a 6.2% cap rate they will be selling it at 8%.
“If they do find a buyer, the group will be at the beckon and call and the buyers will dictate the price they want to pay,” the analyst continued.
Meanwhile, analysts say Centro could possible recover from this disaster.
“But it will take awhile, Centro will have to find a good source of equity… and that will be a challenge after today.
“There is also the question of confidence the group, investors would want to be sure this would not happen again,”
“Basically, Centro would have to clean up completely. But I am afraid that they might not be able to recover,” the analyst continued.
Centro currently has $26.6 billion in its managed property portfolio.
Currently major shareholders including the Commonwealth Bank (12.95%); JP Morgan (12.39%); Barclays Global Investors (9.32%); Westpac (8.62%) and
And the CBA (5.79%); JP Morgan (5.72%); Barclays Group (5.14%); and APN Funds Management (5.05%) have also stuck to CER.
Centro’s disaster rippled through the property sector, which closed 11.5% lower, loosing $11 billion in value.
Other retail property trusts also took a hit, Macquarie CountryWide was down 12 cents or 6.15% to $1.83; Westfield down $1.20 or 5.78% to $19.57; CFS Retail Property Trust was down 9 cents or 3.73% to $2.32.
Australian Property Journal
