explanation of why mgmt rights deal is disgrce

Hi all,

I was thinking that the $240M charged by CNP (equates to $72M equiv for CER, $240M x 30% equity) for mgmt rights is the biggest rip off in history.

$240M charged is on page 5 of below ann:

http://www.cerinvestor.com.au/uploads//company-and-asx-announcements/2011/Centro_Group_restructure_agreement_-_CEO_media_script.pdf


The ABR of CER's properties was $142M (Supplemental 23 Feb 11).

According to the below announcement from 2007 on page 32 , CNP is entitled to earn 6% of gross rental income from CER.

This equates to $8.5M per annum on ABR of $142M

http://asx.com.au/asxpdf/20070914/pdf/314k817b17t3pp.pdf

CNP also earns 10% of the first year?s gross rental
income from initial leases for newly developed tenancies.

Say 10% of CER's ABR is from new leases, then it would need to pay CNP additional $1.42m from ABR of $142m

There are other ways CNP milks CER but these are the main revenue sources on the Aust portfolio.

CNP's revenue from CER would be $8.5M + $1.4m = $9.9m

Lets say CNP receives $10m per year from CER on management fees each year.

Obviously CNP use those monies to pay centre staff, maintenance fees etc so lets say its margin is 20% after all these expenses.

CNP's income from CER would be $2m on annual basis.

However, we are paying $72m to have management fees internalised.

This equates to a price earnings ratio of 36!!! ($72m / $2m)

The absolute most CER should be willing to pay should be a p/e of 10 or $20M....

Mind you return on equity after the merger is only going to be 6%. In an earlier post, I worked out we can earn a susbtantially higher return on equity even by not having mgmt rights internalised.

CNP going into administration would be a great result. The administrator would collect management fees and we'll make the administrator an offer to buy back the management rights at a very low PE.

The above was a rough calc but I think you get my drift

Cheers