Bloomberg News

Centro, Facing Debt Deadline, Won't Rush Asset Sales

December 18, 2007

Centro Properties Group, the Australian owner of U.S. shopping malls owner, will avoid a fire sale after the stock plunged 86 percent this week, Chief Executive Officer Andrew Scott said.

``We do not need to urgently dispose of assets in accordance with arrangements we have with our bankers,'' Scott said today in an interview in Melbourne. The stock fell 41 percent today.

He needs to refinance A$3.9 billion ($3.4 billion) of debt for the Australian company and the listed trust it manages by Feb. 15. Centro owns 700 U.S. shopping centers including the Roosevelt Mall in Philadelphia and Clearwater Mall in Florida after Scott led $9 billion of acquisitions in the last two years.

``There's a question mark over whether Centro can survive,'' said Paul Xiradis, who helps manage $11 billion at Ausbil Dexia in Sydney. ``They bought second-rate properties in the U.S. in an environment where property was valued higher than it is now.''

Centro extended its two-day slump on the Australian Stock Exchange, falling as much as 69 percent before closing at 80.5 Australian cents, with about a third of the stock traded. This values the Melbourne-based company at A$680 million, compared with A$4.8 billion before the rout. Centro Retail Group tumbled about 24 percent to 65 Australian cents, slashing the trust's market value to A$1.5 billion from A$3.3 billion last week.

Centro is the worst performer on the 1,960-member MSCI (MXWO) World Index this year. The company's German-traded shares fell about 40 percent to 60 euro cents at 12.08 p.m. in Berlin.

Lending Banks

Scott said the lenders to Centro are Commonwealth Bank of Australia (CBA), Australia & New Zealand Banking Group Ltd. (ANZ), National Australia Bank Ltd. (NAB), JPMorgan Chase & Co., Royal Bank of Scotland Group Plc (RBS) and BNP Paribas.

Bryan Fitzgerald, a spokesman for Commonwealth, and Felicity Glennie-Holmes, spokeswoman for National Australia, declined to comment, citing company policy on client confidentiality. Fitzgerald confirmed Commonwealth is a creditor to Centro.

Spokespeople for JPMorgan, ANZ, BNP Paribas and Royal Bank of Scotland didn't immediately return voicemail messages.

Centro may sell stakes in the Centro Australia Wholesale Fund, Centro America Fund and Centro Retail Trust, analysts at Merrill Lynch & Co. said in a report yesterday.

In a separate note today, Merrill Lynch said the problems at Centro, with more debt than its peers, were an ``aberration'' among Australia's property stocks.

Shane Oliver, who helps manage the equivalent of $113 billion at AMP Capital Investors in Sydney, said ``any talk of the company going bust at this stage is premature'' because it can sell assets or raise capital.

`Looking for Value'

``Given the strong underlying Australian property market, you could argue that it's a good opportunity for investors to start looking for value in the listed property trusts sector,'' Oliver said in an interview.

Scott, who has led Centro since 1997, has a combined stake of more than 7 million shares in Centro and the trust.

Some A$1.2 billion of the debt he needs to renegotiate is for Centro, with the remaining A$2.7 billion for the trust, Centro Retail Group, according to Standard & Poor's.

The company was created in 1985 as Jennings Properties Ltd. before being renamed Centro in 1991, the same year its flagship `The Glen' mall in Melbourne's eastern suburbs was opened.

It moved into the U.S. though a joint venture with Watt Commercial Properties and acquired 14 malls in California.

Vacancy Rates

The vacancy rate for U.S. neighborhood and community shopping centers will rise to the highest since 1996 as the slowing housing market and a drop in consumer confidence makes retailers more hesitant to sign leases and completions of new sites rise, according to Reis Inc., a New York-based real estate research firm.

The vacancy rate will increase to 7.5 percent by the end of the fourth quarter, Reis said.

The largest U.S. shopping center owners, led by Simon Property Group, are cutting profit forecasts as the economy slows.

Indianapolis-based Simon Property said Dec. 7 it plans to write off its $26 million equity investment in a planned community in Phoenix while General Growth Properties Inc. may take a $77 million charge for land whose value declined.

Commonwealth Bank is Centro's biggest shareholder with a 12.2 percent stake held through its Colonial First State funds management business.

``Any stock with exposure to unsecured short-term debt is currently feeling the impact of the credit liquidity issues in the market,'' said Amber Saggers, a spokeswoman for Sydney-based Colonial. She said this is leading to cuts to earnings forecasts that ``don't necessarily reflect on the underlying quality of the assets.'' Saggers declined to comment further.

`Watchful and Alert'

Australian Treasurer Wayne Swan said the nation's financial system remains sound, though it would be affected by fallout from tightening global credit markets.

``I've been in discussions with the regulators since I became treasurer some weeks ago, and I will continue to do that,'' he told reporters in Canberra today. ``The government and the regulators are watchful and alert.''

Swan wouldn't comment on individual companies.

Centro's refinancing troubles has increased the perceived risk of owning the debt of other Australian property trusts, credit-default swaps show.

The cost of default protection on $10 million of Lend Lease Corp. bonds increased $10,000 to $120,000, Citigroup Inc. prices show. Credit-default swaps on the debt of Westfield Trust, operated by the world's largest shopping center owner, also gained $10,000 to $110,000. There are no contracts on Centro's debt.

Credit-default swaps protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default. They rise as perceptions of credit quality deteriorate.

To contact the reporter on this story: Laura Cochrane in Melbourne at lcochrane3bloomberg.net.

To contact the editor responsible for this story: Iain Wilson at iwilson2@bloomberg.net


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