my revised nta calc arrives at 1.711

OK guys here is a realistic take of CER's possible NTA position at 31 December 2008:

I think it’s a bit more accurate than my first attempt a month or so ago.

I have numbered each component of the calculation which is detailed further in the appendix below.

Would love to get feedback. Please advise if I have missed anything.

Exciting exciting times ahead :-)

We deserve it. Its been a long road.

Ironically tomorrow is 17 December. We all know what happened 17 December last year!

Cheers


Opening NTA at 30 June 2008:..... $1.27 per share

1. ADD (Reversal of Impairment Charge) $0.144 per share

2 LESS (Reduction in value of derivative contracts with CNP)........($338m / 2.2b) = $0.154 per share

3. ADD (Operating distributable profit for half year) $0.0675 per share

4. ADD 5% decrease in value of US properties (see below as to why this makes NTA higher)............$0.40 per share

5. LESS (Dividend paid during half year) $0.014 per share

NTA: $1.711

For properties sold during year and Australian portfolio see bottom of page. No change to NTA



1. The future of SuperLLC is now secure. This amount should be written back. The impairment was made to cover CNP’s negative equity in SuperLLC. As SuperLLC will continue as a going concern, this should be written back
($317m / 2.2b shares) = $0.144 per share


2. The derivative contracts will most likely be written down. When the exchange rate was at 0.96, the derivative contracts had value as CER was hedged at about 0.75. This loss is not a cash related loss and should not affect distributable income. $338m was the net value of the derivative contracts as per the annual report (note 21)
....($338m / 2.2b) = $0.154 per share


3. I’m assuming that CER make approximately 6.75c per share in operating income. For FY08 they made 13.25c so 6.75c for the half year should be right. According to the 3rd quarter report, both their Australian and US revenues were up.

4. For point 4, please refer to supplemental report and presentation and below

30 June 2008

US$6.1b (value of properties at 30 June) / 0.96 (exchange rate used at 30 June) = AUD$6.3b

US$3.6b (US liabilities at 30 June) / 0.96 = AUD$3.75b

Net US assets in AUD = AUD$6.3b - AUD$3.75b = AUD$2.55b



31 December 2008

US$6.1b x (1-0.05) = US$5.8b

US$5.8b / 0.67 (assuming exchange rate stays at 0.67 at 31/12) = AUD$8.7b

US$3.6b / 0.67 = AUD$5.37b

Net US assets in AUD = AUD$8.7- AUD$5.37b = AUD$3.43b

Increase in Net assets = AUD$3.43b – AUD$2.55b = AUD$0.88b

AUD$0.88b/2.2b = $0.40 increase in NTA

I have explained the exchange rate impact in many threads on the CER board. This will impact CER favourably.


5. $0.014 dividend paid during half year


Additional notes


The properties sold will have negligible impact on NTA as there were only $100m in properties sold and they were sold for just under book value.


In addition, I don’t think there will be any devaluation in CER’s Australian portfolio.

Below are my reasons:

I believe CER and CNPs yields are already quite high relative to its peers.

As at 30 June, CER had a yield of 6.16% on its Australian portfolio, CNP 6.44% and WDC had an average yield of 5.5% on its Australian portfolio.

WDC properties are 15% more expensive than CNP in Australia (5.5% / 6.44%)

Have a look at their announcements on 27/8 and 29/8.

As CER has now arranged a longer term extension on its debt facilities and not be forced to sell anymore of its existing portfolio, you will see the yields come in on each other.

Interest rates have fallen by 300 basis points in the last six months too so that is going to have a massive bearing on the cap rates given at 31 December.

There is a strong correlation between interest rates and cap rates. Do a google search on cap rates and interest rates and you'll see what I mean.

If interest rates decrease by 3%, in theory investors would be willing to accept 3% lower return on their investment. Therefore cap rate should come down by 300 basis points.

I understand that the commercial property market has slowed down and all that, however even if cap rates are going to blow out by 15% for Australian commercial properties, the benefit of having a 300 basis point decline should outweigh the negatives of having a 15% devaluation in properties.

WDC properties are also more expensive than CNPs as explained earlier.

It's a similar story with both CNP and WDCs US portfolios. CNP has a bigger cap rate than WDC. CNP/CER’s portfolios are performing very strongly. Their largest tenants Kroger and Walmart are reporting strong growth, which increase traffic numbers at their centres and stabilises occupancy rates.

The reason why I think cap rates in the US will only soften by 5% for CER is because their yields were already quite high because there was an expectation that they were going to dispose of properties. As this will no longer be occurring, any increase in cap rates in the overall US market will have less of an impact on CER for reasons mentioned above.