mouse roars at centro...

Source: www.businessspectator.com.au

Mouse roars at Centro
12:38 PM Feb 27, 2008 Stephen Bartholomeusz

The move by a boutique property manager to call a meeting of members of a Centro-managed property syndicate is a threatening thin end of a wedge that could be damaging to the reeling property group.

Pelorus Property Group, which manages about $500 million of property, has teamed up with a New Zealand financial planning group, Money Managers, in an attempt to displace Centro as the responsible entity for the syndicate, MCS 16. That syndicate owns a retail centre at Toormina, near Coffs Harbour in NSW, valued at about $45 million.

By itself, the impact of a successful displacement of Centro by Pelorus on the wider Centro Group would be immaterial. The attack of MCS 16, however, is part of a broader assault by Pelorus and Money Managers on as many as 10 Centro syndicates owning about $1 billion of property.

If that larger gameplan were mostly successful, it would encourage other managers to emulate the Pelorus gambit. With $8.5 billion of assets within the syndicates generating multiple fees streams from managing the syndicates and the underlying properties, that would be very damaging. When Centro bought the MCS group in 2003 it paid nearly $200 million for the right to manage syndicates that owned $1.3 billion of property – about a sixth of the assets within the syndicates today.

Pelorus isn’t, of course, the first small property manager to see an opportunity in Centro’s distress. MFS announced an attempt to replace Centro as responsible entity for 35 syndicates in January. A few days later MFS was overwhelmed by its own financial difficulties, which it is still grappling with.

What makes Pelorus potentially dangerous to Centro is the alliance with Money Managers, which put a lot of clients into various Centro syndicates and which therefore might have a sufficient base in several of the syndicates to win the vote. Centro is seeking to establish whether it can vote its own interests in the syndicates – it has significant interests in them, potentially enough to defend its position if it is able to vote.

Money Managers has its own interest in helping Pelorus, as it would receive a trail fee of 0.25 per cent a year from Pelorus if they succeed.

The Pelorus platform is based on proffering lower fees and highlighting Centro’s parlous financial condition, offering to distance syndicate members from Centro’s problems.

While Centro’s plight doesn’t directly affect the syndicates, distributions to investors in MCS 16 have been suspended and Centro has said it may not be able to honour its hedging obligations to the syndicates, which could adversely impact funding costs.

Centro has been otherwise occupied in recent weeks and therefore hasn’t devoted a lot of attention to the threat. It has, however, highlighted the modest size of Pelorus’ portfolio and its own track record as a manager of the syndicates and of retail property generally, as well as its relationships with the major retailers, questioning whether Pelorus has the expertise and resources to manage the assets.

Once it gets its results out of the way on Friday, it is expected to pay a bit more attention to the threat. Centro is well aware that if one of its syndicates is picked off others will be targeted, putting a considerable amount of fee income that flows from the $8.5 billion of underlying properties at risk.


Ends.

Cheers, Pie :-)