Well, a week might be a long time in politics, but a day sure is a long time on HC. Either because absolutely nothing happens... or because absolutely everything happens.
We went from rallying the troops in an attempt to force and EGM, through to leaked documents and finally onto a confirmation that they will make an investor update announcement tomorrow.
I have to say that Larry Page and Serge Brin would be smiling at the events that took place on the centroportfolio.com website yesterday afternoon. "Don't be evil" indeed.
Some people who will be feeling the pain this morning are Simon Rooney, who as we speak is getting his behind kicked all round 300 George Street and the folks at marketing company HMA Blaze who appear to be responsible for the mess. Apparently there is no such thing as bad publicity.
It looks to me like Centro have woken up to the fact that an update to asset sales is required. We have said over and over that Centro PR is a disgrace and recent events just go to prove this. I genuinely hope they are getting the message that keeping ALL stakeholders updated is the key to success. I learned this on MBA week 2, in fact I might fax over the lecture notes to Centro HQ in the unlikely event that they might be interested.
Well, I guess the question now is how significant is this event? For me there are a few parts to this:
1. As already mentioned, Centro have learned the hard way that communication is key. When people feel left out, they fight back.
2. We have some details on which assets have been decoupled from CAWF.
3. We now have an approximate timeline for the process.
For those of you new to the CNP affair, CAWF (Centro Australia Wholesale Fund) is an open-ended wholesale fund consisting of 28 stable properties, which are valued at around $2.6bn, give or take. According to documents released by Centro, CAWF is 50% owned by CNP and 50% owned by DPF (which is 51% owned by CNP). We now have confirmation that Centro has decoupled these 4 properties, (which constitute around $1.15bn in value) and is just selling the CAWF 50% ownership in all 4 and the MCS28 ownership in Bankstown. From my calculations, CAWF only has a 35% LVR, which is surprisingly good news debt-wise. Confused? Now you get a feel for why the bankers took so long to get their head around things.
What is interesting here is that Centro is just selling the 50% CAWF ownership. Three of the properties are co-owned by CER and this stake is not for sale. I have said over and over that CER is in much much better shape than CNP and the recent divvy confirmed this. The smart money knew this a long while ago and has been accumulating ever since and spooked CER holders have been happy to let the stock go at bargain prices. CER is almost certainly not interested in selling assets to the extent that CNP is, it simply doesn't need to.
The remainder of CAWF (24 properties) are being marketed separately 'mini-CAWF'. Anyone reckon they are on the same timeline? I don't. We received some information a while ago that suggested mini-CAWF was as-good-as sold already.
The other fund that is for sale is CAF (Centro America Fund). This consists of 32 US properties worth around $1.2bn. Applying my 5% drop (see previous note) at 50% leverage would put a figure of around $1.08bn on this now. I have a feeling that CAF is going to be a harder slog, hence the recent announcement that they are still working out what to do with it. We should be looking for details on this in the announcement tomorrow. CAF is 41% owned by CNP, 50% owned by DPFI (which is 67% owned by CNP) and 9% owned by external investors.
So, where does this leave us? Well, given recent transactional evidence we should feel confident that the 4 properties will go at or around book value. If mini CAWF goes the same way, we can assume that CNP and the Centro portion of DPF will be able to pay down about $1.95bn of debt (i.e. 75% of the $2.6bn of the CAWF FUM). That's right, $1.95bn. The remaining $6-700m of funds will probably be used for liquidity in DPF (see recent DPF announcement on the Centro website).
The jury is still out on the CAF sales, but if they are sold that will add another $1bn or so of debt paid off.
Make no mistake, Centro still has a way to go but these are certainly encouraging signs. I still have no idea why this has taken so long: it could be that Centro was closer to the wire on debt extensions than we will ever know OR there really has been no rush from day 1.
CNP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
