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December 27, 2007 |
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CENTRO PROPERTIES: Unable to Secure AU$3.9 Billion Debt Funding Centro Properties Group, owner of 700 U.S shopping malls, is struggling to refinance debt because of the collapse in the subprime mortgage market, various reports say. Anthony Klan of The Australian reports that Centro Properties and Centro Retail Trust said they had been unable to secure debt funding of AU$3.9 billion due to the sub-prime-related tightening in U.S. credit markets. The debt, The Australian states, comprises AU$1.2 billion for Centro Retail Trust and AU$2.7 billion for Centro Properties Group. The AU$2.7 billion is made up of AU$1.3 billion for Centro Properties Group directly, and AU$1.4 billion for joint ventures. Laura Cochrane of Bloomberg News reports that Centro needs to renegotiate the AU$3.9 billion debt it manages by February 15. Centro Chairman Brian Healey wrote to securityholders that Centro has obtained an interim extension of A$1.3 billion in maturing facilities and interests in U.S. joint venture facilities of A$1.4 billion until February 15 2008. The extension will allow Centro’s Board and management to undertake a strategic review of the options available to secure the long term capital structure of Centro and its managed funds to reduce current gearing levels. "In other words, we need to agree a 'roadmap' for the future of Centro," Mr. Healey said. Centro disclosed that increased costs associated with the extension of debt facilities and expected costs of the refinancing will have an adverse effect on its earnings and forecast distributions. The effects are: * Centro’s operating distributable profit per security has been revised downward from 47.0 cents per security to 40.6 cents per security, representing a slight increase of 2.1% on FY07 DPS of 39.8 cents per security. * Centro will not pay a distribution for the half year ending December 31, 2007. This is done for reasons of prudence and in order to ensure the broadest possible range of long term refinancing options. The Australian relates that the company's losses rose because it had overspent acquiring U.S. shopping center assets, outlaying US$8.72 billion since April 2005 in deals that have made the group the fifth-largest owner of U.S. shopping malls. Bloomberg, in a separate article, reports that the U.S. malls helped Centro increase operating profit by 14% to a record AU$335.3 million in the 12 months ended June 30. The value of those assets has been falling as U.S. property slides and, concurrently, the cost of U.S. bank debt has soared on the back of the fallout from the sub-prime lending crisis, says The Australian. Centro Chief Executive Officer Andrew Scott is quoted by reports as saying, "We never expected nor could we reasonably anticipate that the source of funding that had been historically available to us and many similar companies would shut for business." An analyst told The Australian, "It's clear Centro has massively over-exerted itself and it's no surprise it's down so much." Sydney-based analyst Callum Bramah at Macquarie Group Ltd. shared to Bloomberg, "Centro are no longer in charge of their own destiny. We believe Centro will be required to sell assets at a loss simply to use the cash proceeds to pay down debt." In a statement filed with the Australian Stock Exchange, Centro says it is not under any obligation to sell assets and would only do so selectively if necessary. Further, it stated that if asset sales are decided upon, whether in Australia or the U.S., Centro will look at selectively divesting assets that will allow it to repay short term debt while at the same time preserving securityholder value. Regardign trading in its securities and some theories expressed by research analysts, Centro commented that: * There is no clause in any of Centro's or Centro Retail Trust's financing documentation or loan covenants that would trigger a default if either entity's market capitalization falls below a certain level. Neither Centro nor any of its managed funds are in breach of any lending covenants; * Centro management and external financial advisers, as well as the advisers of our financier, closely examined the cash flows of the business. On the basis of that review, Centro is comfortable about the ongoing viability of the business and would not allow its securities to trade if this were not the case; * In refinancing the short term maturing facilities and ultimately reducing the gearing of the group, Centro has a number of options available to it including sale of interests in managed funds, joint venture of assets, asset sales and/or equity issuance; and * Centro is not obliged to take any specific course of action over the next eight weeks. What is required is the development of a strategic plan or road map to successfully operate the group on an ongoing basis. Centro's lenders, according to Mr. Scott are Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd., JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and BNP Paribas, notes Bloomberg. About Centro Properties Centro Properties Group -- http://www.centro.com.au/ -- is an Australia-based company that comprises the operations of Centro Property Trust (the Trust) and its entities, which are engaged in property investment, property management, property development and funds management. The Company operates in two business segments: property ownership business and services business. The Company derives income from retail property rentals of shopping center space to retailers across Australasia and the United States. It also derives income from its retail property investments in listed and unlisted entities. Its services business activities include incorporating funds management, property management and development and leasing. During the fiscal year ended June 30, 2007, the Company acquired New Plan Excel Realty Trust (New Plan), Heritage Property Investment Trust (Heritage) and Galileo Funds Management, as well as assumed full ownership of its United States management operations. The Troubled Company Reporter-Asia Pacific reported on Dec. 18, 2007, that Standard & Poor's Ratings Services lowered its issuer credit, senior-unsecured debt and preferred stock ratings to 'BB+' with negative implications. |
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