The Australian"Centro scheme costs staff $265m"By Turi Condon,...

The Australian
"Centro scheme costs staff $265m"
By Turi Condon, Property editor | May 05, 2008

EMPLOYEES of the battered Centro Properties Group are understood to have sustained losses of about $265million on their holdings in the company since it ran into trouble in December.

That represents a loss of just under $500,000 per employee for each of the 531 workers who were known to be holders of Centro via an in-house scheme.

Andrew Scott, the former chief executive of the Group, spruiked margin loans to his senior staff and heavily promoted the benefits of the stock to employees.

Six to eight senior executives have had to sell or are selling their investment properties after the margin loans were called in when Centro's share price plummeted 76 per cent on December 17, according to a former Centro executive.

One of Centro's lenders, the Commonwealth Bank, wrote margin loans for Centro executives as the company's share price rode to highs of $10.00 last July.

Centro's shares closed on Friday up 5c or 11 per cent at 49.5c.

They hit a low of 23.5c on March 26. Australia's second-biggest shopping centre owner has been on the edge of collapse since December when it was unable to refinance $3.9 billion worth of maturing debt in the risk-averse credit markets, sending its share price into free fall.

On Wednesday Centro won a seven-day reprieve to marshal its bankers into a third debt extension. Some former executives blame Mr Scott for the personal financial pain that permeates the group's staff. "He was an extraordinarily arrogant man," says one. "Andrew Scott was obsessed with being bigger than Westfield (the world's biggest shopping centre owner). His prime motivator was being spoken of in the same league as the Lowys (founders and major shareholders in Westfield)."

One former Centro executive, who declined to be named, told The Australian he had taken out a margin loan in 2006, while others close to the company said CBA made presentations at the company's headquarters in its The Glen shopping centre in Melbourne's Glen Waverley in April and May of last year.

In addition to the margin loans, which another former executive said were restricted to senior levels, all staff could take up shares through an employee plan, a staff reward commonly used by companies. Centro's 2007 annual report says employees were eligible for a 10-year, interest free, non-recourse loan to buy company shares.

Most staff are understood to have taken up the offer.

It was the losses under this plan that had caused the most "tears and sorrow", according to a former employee.

"A younger staff member there for two to four years would have lost around $150,000 (on paper)," said the former executive. "For older centre managers who had worked six or eight years for the company, it was probably more like $250,000-$300,000."

Centro's last annual report shows 531 employees took part in the "Centro Employee Security Plan and Loan Scheme (ESP)", with 27.8 million Centro securities issued.

When Centro's share price reached its zenith of $10, on paper the employees had $278 million worth of company securities under the plan. Yesterday, the shares were worth $13 million.

Many staff had been with Centro 10 years or more and saw the ESP as part of their nest egg, the executive said.

"The paper loss is massive to the extent that it alters the style of living you could expect to enjoy for the rest of your life."

A Centro spokesman said the company did not comment on the private financial affairs of employees.

"It was obviously very upsetting for all involved when the share price fell, given the financial impact it had on some of our staff and investors generally.

"However, it is not unusual for individuals to establish personal margin loans or for a company to put in place a share plan for its employees," he said.

The spokesman said the margin loans had not been provided by or facilitated by Centro.

At the company's upper levels, former executives have told The Australian there was pressure to borrow to take up further shares or to convert the ESP to recourse loans, effectively margin loans secured against the shares.

"Senior staff were allocated more securities if it was on a recourse basis," the former executive said.

Executives' loyalty was measured by how many shares they retained, he said. "It was a career-limiting move to sell.

"It wasn't an edict, it wasn't in writing, but there were unmistakable whispers. It was understood by all."

Another former executive said: "Andrew Scott championed margins loans against Centro stock. He told executives, 'You have too much equity tied up in Centro'."

Mr Scott could not be reached for comment yesterday.

Centro's remuneration model was built on low base wages and a relatively generous share plan.

"You got shares allocated each year and they vested for two to three years," said the executive. "In good times, it was great ... but no one saw the crash coming."

"People believed in the Centro model, that one day we would be bigger than Westfield," said the other former executive.

"Everyone enjoyed going along for the ride."