Centro offloads shopping centres by: Sarah Danckert and Bridget...

Centro offloads shopping centres

by: Sarah Danckert and Bridget Carter
From:The Australian
October 13, 201112:00AM

Centro chief executive Robert Tsenin confirmed last week that the company was planning to offload about $1 billion worth of assets.

RETAIL landlord Centro has managed to offload more than $100 million worth of shopping centres ahead of plans to wrangle its disparate arms into a new $3 billion listed company.

Centro Hollywood Plaza shopping centre in Adelaide, held by Centro syndicate MCS 9, has been sold to Centuria Funds Management for $75m, according to market sources.

The centre, located in Salisbury Downs, 18km north of Adelaide, is the second-largest sub-regional shopping centre in Australia.

It was valued at $83.35m at June 30 this year.

The sale of Centro Hollywood Plaza follows hot on the heels of two other recent Centro syndicate sales.

Coles Morewell in Victoria was sold to a domestic investor for $9.5m, below the June 30 book value of $9.4m.

And last week Charter Hall settled its purchase of Centro's shopping centres in Albany, Queensland, for $40.13m, just short of the centre's book value of $41.315m.

Centro chief executive Robert Tsenin last week confirmed that the new company, Centro Retail Australia, would consider offloading $400m of assets it held directly and a further $600m of shopping centres held by its 27 syndicate funds should the debt-for-equity swap conjured by its lenders be approved by shareholders in late November. However, Centro's plans to aggregate its two listed property trusts with some struggling satellite funds to create a new $3bn listed vehicle is facing a groundswell of opposition from shareholders in the much healthier Centro Retail Group.

Some Centro Retail shareholders have voiced their concerns on investor websites during the past week.

They are calling for other investors in Centro Retail to vote down the company's plans to create a real estate investment trust and salvage the debt-stricken Centro Properties Group.

Centro has warned that the headstock, Centro Properties, will probably be placed into administration if the merger agreement does not go through before December 15, when $2.9bn in debt falls due. It warns the same fate awaits its syndicate business, which manages 27 funds, some also burdened with high borrowings.

According to Centro, if Centro Properties is placed into administration, Centro Retail will go through a period of uncertainty.

The two companies are deeply intertwined. Centro Properties is Centro Retail's largest shareholder, there are a slew of joint ownerships, and Centro Properties controls the property management.

However, several retail investors, some of which have contacted The Australian directly to voice concern, remain unconvinced that the future health of Centro Retail is dependent on the survival of Centro Properties.

Among their key concerns is the possible double dilution in value shareholders face under the merger, which entails a highly complicated debt for equity swap.

Under the deal, senior lenders to Centro Properties will receive about 70 per cent of the equity in the new company in exchange for the $2.9bn owed.

The first dilution in value comes from the merger itself which, after a share consolidation is completed, will result in a fall of about 8 per cent in Centro Retail's present net tangible asset value of 44.5c a share.

"To think that we are taking a haircut on our NTA by agreeing on this proposal when the syndicates who are screaming for liquidity are entering into the new entity with no penalty over their heads," one investor wrote.

Centro Retail shareholders are also concerned they face further dilution if the two class actions against the company, estimated to top $600m together, succeed next year.

However, broker CLSA, which recently resumed coverage of Centro Retail, said that despite the likelihood of dilution there was a chance of post-merger upside for Centro Retail shareholders with the amalgamation creating a "light at the end of the tunnel" for investors after years of debt issues.

"We do not see a more favourable alternative given the complexity of the Centro Properties structure," CLSA analyst John Kim said.