aazpb, page-2

Well done,

All the hybrids are getting flogged again today. They are in an ugly downtrend due to very low interest predictions circa 3.75% early next year which will cruel their yield short term. I can understand why they are less attractive and why punters want their money back when the whole genre is looking like a failed experiment. Fear of perpetuity so one might never get their money back all while heading into a very low interest rate era makes them suspect. With very low liquidity the only way to access capital is to accept low-ball bids by equally nervous buyers. Not to mention company specific risk in this dangerous recession looming.

Selling way over done IMO when a couple of dollars interest lost with lower rates causes hybrids to get sold off by $30! A lot of years of very low interest before that makes sense. Conversely, many years of very low interest rates holds up cap rates and valuations for a property trust, eases debt payments and aids development sales etc helping to ensure survival so I don't see the very low interest rates as all bad.

I'm already full as a goog (read too full) from being too greedy so I am considering my position before loading up more. Too illiquid to trade or stop out on the way down for me and way oversold past $60. I could write an essay on the research and conclusions for AAZPB but I won't. Suffice to say watch the heads (ALZ) as they are liquid and tell the story about company's future and solvency risk etc. Have held 32c very strongly last couple of weeks on reasonable volume.

Two options early next year IMHO for ALZ. Either the overseas bank syndicate debt they are currently chasing comes good to replace portion of $563M CMBS due or another equity raising to make up the finance shortfall. Given the C&I properties coming onto the balance sheet and limited capital recycling I don't believe they have enough spare credit fascility to pay back CMBS and cover committed construction work. They will need another $250M at least to see them through June 09 I recon. There is no other choice, asset sales are not an option in this market and neither is running out of working capital and going into receivership. $2B of NTA is too much to let go into receivership for the sake of another $250M when business and is tough but healthy, especially when 60% of that is owned by Capitaland and they have $4B cash currently in the bank.


My preference is for the bank to knock them back and force Capitaland to come up with more equity through another rights issue. That makes the company rock solid for gearing and such high net-equity that it would never fall over. The ALZ shares would take another hit but only a small one I recon becasue even after dilution the divi would be compelling. AAZPB would probably take a hit in sympathy but in reality just become that much lower risk.

The other outcome is the o'seas banks come up with the funds at a reasonable price (say 200 basis points above BBSW) secured against the CMBS assets being rolled out. In this case the banks have basically done the due diligence for us by saying ALZ as so secure they are prepared to stump up credit when hardly anyone else is able to raise debt. Raising debt now for June 2009 looks like the worst possible time in the credit crunch to be doing so and if they can raise the funds now then surely they will be able to do the same in 2011 for the last $300M CMBS due (the local syndicated bank debt is evergreeen and should get rolled over each year without too much stress). This outcome would see the ALZ shares rally strongly as the liklihood of any further dilution going forward dissapates and I would expect AAZPB would also follow suit as the company was shown to be sound and creditworthy.

I just cannot see a situation in march 09 (latest to either confirm debt raising or announce another rights issue) that ALZ turns so bad that a cashed-up Capitaland walks away from it's $1.6B net tangible equity investment rather than stump up the extra funds required to survive through to the other side of the cycle.

While margins for commercial debt remain high the chance of redemption obviously remains low. If anyone can show me where my thinking is flawed and risks exist that I haven't seen I would truely appreciate your thoughts (unless it is just to say share price is sinking which means the company is in trouble).

cheers