Hi All,Below is the direct benefit to CRF assuming the three...

Hi All,

Below is the direct benefit to CRF assuming the three regional centres have their half share sold at book value:

Centre name....31/12/11........50%.......Cap rate%..NOI(50%)
Colonnades....298.499.........149.25....7.25%.....10.82
Galleria.......620.322........310.16.....6.00%....18.61
The Glen.......412.687........206.34.....6.25%.....12.90

Total Value of 3 centres x 50% :665.75
Weighted avg cap rate of these 3 centres: 6.36% (Taken from supplemental report)
50% total NOI: $42.33M (Valuation multiplied by cap rate)

Weighted avg cost of debt: 7.66% (according to debt supplemental 31 Dec 2011)

Total interest savings if 50% share of assets sold at book value: $665m x 7.66% = $51M

Total estimated increase in net profit: $8.67M ($51M-$42.33M)

Increase in EPS: $8.67M/1.34b shares = 0.65c

Increase in div per share (assumin div payout ratio of 80% maintained): 0.52c

Also, as gearing will fall to below 30%, it is highly likely the the margin on the core facility will decrease.

Centro mentioned in the supplemental explanatory memorandum:

The agreed Core Facility margin will reduce if the LVR is less than 35% and will increase if the LVR exceeds 45%.

Also in the same report Centro mentions:

Centro Retail Australia remains committed to its stated objective of achieving an investment grade credit rating as soon as practicable to assist in the diversification of its borrowing sources and, where possible, reduction in its cost of debt.



Once the half sales in these assets are effected, CRF will be much closer to obtaining an investment grade credit rating. With low gearing, near 100% occupancy and high exposure to non discretionary tenants, there is no reason why this could not be obtained.

It is also highly likely that the current cost of debt of 7.6% will become more comparable to its peers; ie CFX's current cost of debt.

It is interesting to note that CFX has gearing of 28% and yet its weighted avg cost of debt is about 6% (refer to CFX HY results presentation 21 Feb 12)

It had recently raised long dated convertable notes at a rate of 5.75%.

Even if say a 100 basis point reduction in CRF debt from 7.6% to 6.6% on an outstanding facility balance of $1.32B ($1.989B current debt - $665M likely debt reduction) it would result in a further $13M cost saving or an EPS increase of 1c per share/div increase of 0.8c.

Please note a rate of 6.6% is still significantly higher than the 3 and 6 month BBSW rate of 4.28%. It is also still much higher than CFX's cost of debt of 6%.

Therefore, the direct and indirect benefit of a 50% sale in these 3 assets may result in excess of an EPS increase of 1.6c or dividend per share increase of 1.3c.

Analysts will probably take a while to put it all together as they normally do when it comes to Centro Retail. No problems there, just more opportunities for us!

Cheers