new to centro - need help please, page-5

Hi Mr Delta,

CNP is a manager of property trusts (both listed and unlisted) which derives income for its management services. In addition this it has investments in retail properties and holds stakes in many of the funds that it manages.

CER is one of the property trusts that CNP manages. Therefore CER is more of a pure property play which just derives income from its retail properties. The properties within the fund are heavily skewed towards grocery anchored retail centres which tend to be neighbourhood centres with a supermarket or two and some associated specialty shops.

Both CNP and CER have gearing levels which are considered to be too high for the current environment. When combined with falling asset values this has lead to CNP having virtually all of its equity wiped out and having to do a heavily diluting deal with the banks. CER still has significant equity and a gearing level circa 65%.

Some of the short term challenges for CER include closing out its FX investment hedges. CER currently has approx 160% of the level of its US investments hedged and this really needs to be fixed. This can be done at no cost with AUD/USD somewhere between 80 and 90 cents, but we don't know the exact figure. This hedge was an approx $700M liability at 31 December 2008 but with a little luck could be gone by 30 June 2009.

There is a lot of debate going on as to whether CER will pay a distribution at 30 June. The trust's constitution requires it to pay out it's taxable income for the year to unitholders, but this can be done in the form of cash or new units. CNP will not be able to pay a distribution for many years due to its agreement with the banks.

As at 31 December 2008 the net tangible asset (NTA) backing of the trust was circa 70 cents per unit. There are likely to be some further writedowns in the property values at 30 June 2009 but these will be at least partially offset by hedging gains. Also the current unit price allows for some fairly significant writedowns.

Personally I see CER's NTA bottoming out at aprox 50 cent in the Decemeber accounts this year. Once the market has stabilised, CER's share price should return to trading around its NTA. This would assume a sustainable distribution policy was also in place. This shows that there is still some very significant upside in the unit price if CER play their cards right.

All of this of course is just my opinion and I am sure that others out there hold a much more pessimistic view of CERs future. This is what makes markets though and I personally love it because of the opportunities that it presents.

Best of luck!!