Yesterday, crikey.com.au published an article entitled "The...

Yesterday, crikey.com.au published an article entitled "The peddlers of recession porn" which is still on their site and worth a read. Actually, the real title was "The peddlers of recession p-rn" which I later found out was to stop spam and other software filters banning the content due to use of the word "porn".

Anyway, in summary they say that there is a deluge of bad news information ("recession porn") coming at us from all sources but "Like real p-rn, of course, recession p-rn doesn’t serve much actual purpose except to get people hot and bothered, but it’s tremendously popular."

The alleyinsider article is just recession porn in my view. In fact, it's probably worse.. hardcore if you like. The article opens with "Some observers now predict that more than 25% of retailers may go bust in the the next two years." Exactly who are these observers? A handful of shop assistants standing outside the mall having a smoke break or a bunch of industry experts? Actually, it probably doesn't matter, very few people predicted the malaise in which the US now finds itself and thus it would be safe to assume that few will predict how things are going to pan out in the coming months.

I do agree that one of the major issues facing Centro and other REITs is the potential for revenue decline moving forward. Remember though that we do not know details of the contracts under which US tenants lease space, nor do we know the level of bond or termination payment required to break a lease. We also cannot assume that vacated space will not be re-let soon after. I would also point out that Centro leases contain an automatic yearly rent increase provision, something that Andrew Scott spoke about a few times and was very proud of. Under this, those tenants who remain get a rental increase every year for the duration of the lease. I seem to recall Centro publishes these figures every quarter.

So, in summary I would caution against assuming that a % drop in occupancy equates to an equivalent permanent % drop in revenue from here on. Lease income is going to experience stress, but we have a very good leasing platform operated by a good leasing team which has the sole aim of trying to mitigate the risks.

Finally though, I do agree that the company needs to give us some indication or modelling of what revenue drops could be expected under various scenarios. I hope this comes prior to the HY results, but I somehow doubt it will, if at all.