Ann: $690.4million Co-ownership agreement entered, page-4

re: Ann: $690.4million Co-ownership agreement...
Hi All,

Yep great announcement today by CRF. I haven't discussed the whole CATS issue in detail but I'll keep it separate from this post!

The Dec 11 value of the half share of these 3 assets were $665M

As per today’s announcement, the total proceeds were $690.4 (pre transaction costs)

This is an NTA increase of $25.4M or 1.8c on share, based on post CATS shares on issue of 1.427b.

Let’s say after transaction costs, the revised NTA is up 1.5c to $2.205.

Great news about this sale is not only has gearing reduced to 26% but it is also EPS positive as Ive mentioned previously.

The announcement mentions that the sale was based on a yield of 6.1%. This translates to NOI of $42.1M ($690.4M x 6.1%). Going forward we will be losing out on $42.1M of NOI.

However, $690M will be injected into the core facility. According to Dec 11 supplemental (On centro website), the weighted avg interest payable was 7.66%. The BBSY has come down since then, however CRF is mostly hedged according to 19 Dec 11 announcement, so we will assume that this is the rate CRF is still paying.

Total saving going forward would be: $52.8M ($690M x 7.66%)
Total net saving is about $10.7M or an EPS increase in 0.7c per share.

This does not include any additional savings from its elevation to investment grade status. Prior to the sale, CRF had drawn down $1.84B. A reduction of this facility in the amount of $690M would bring total debt down to $1.15B.
CFX currently has weighted avg interest rate on hedged debt of 5.4%. Its gearing of 27.4% is also slightly higher than CRF’s anticipated gearing post settlement. Refer to CFX’s latest quarterly announcement. It is conceivable that CRF’s cost of debt can reduce significantly.

Let’s say with the award of an investment grade to CRF, its cost of debt will reduce by 100 basis points or 1% to 6.6% (still higher than its peers)

On total drawn debt of $1.15B, this would result in savings of $11M per year. This translates to an EPS increase of 0.7c per share.

Although we have sold a half share in these three assets, we will still maintain the management rights, which may result in another 0.1c increase in EPS (This is very conservative)

The direct and indirect financial benefit of proceeding with this sale is about 1.5c EPS per annum.

Prior to the sale, EPS of 15.1c had been forecast for FY12. As the CATS dilution will not occur until 30 days after court approval, it is unlikely that the dilution will affect the forecast full year FY12 dividend of 6.4c. As the court hearing is in June and the dividend will likely be declared before financial year end, we should be ok.

However, for FY13, the number of shares on issue will increase from 1.34B to 1.427B, which is an EPS dilution of 6.4%. Assuming EPS of 15.1c forecast this FY remains the same next financial year (very conservative and unlikely given NOI is growing at about 4% per annum), EPS would reduce by 1c to 14.1c.

Once we add back the post sale benefit of 1.5c, we will get an overall net EPS benefit of 0.5c to 15.6c per share.
Assuming, the dividend policy remains the same at about 81% payout, then the dividend per share next financial year would be approximately 12.6c per share.

As mentioned before, I have not assumed any NOI increase, I have been very conservative with my investment grade upside estimates and not considered any redevelopments, which are likely to have a target yield higher than the cost of debt.

It is interesting to note also that we are trading at about a 14% discount to NTA, which is at a significant discount to many of its peers, which Centro no longer is justified.

The market is often slow to wake up to the potential of Centro Retail. That is to their detriment and our benefit! Bring on the divvy :-)

Cheers!