The first question everyone will ask is: 'How did Centro Properties chairman Paul Cooper and Egon Zehnder attract people of the calibre of Anna Buduls, Susan Oliver and Robert Tsenin to the board of Centro Properties?' And it looks as though people of similar calibre are also prepared to go on the board of Centro Retail (Centro appoints 3 directors, June 25).
The first answer is that a lot of people are attracted to a turnaround where you have the support of the major Australian banks and a number of overseas institutions as equity holders.
And second, Centro has a unique set of Australian and US retail properties, combined with a finely tuned management skill to manage smaller shopping centres.
In the US, Centro’s shopping centres are doing better than many of the up-market malls – and a Centro director will gain a wonderful insight on the workings of the US recovery.
It is worth recalling that Centro had five debt extensions (including one as short as a week), so its survival was a close thing. It survived because of the calibre of its management, the fact that a key asset was the shopping centre management contracts (which would be destroyed by official administration) and the fact that if Centro had gone under it would have decimated the commercial property market in Australia, with long-term consequences for the banks.
It will be a long time before shareholders get a return because first, the hybrid equity must be paid out – or more likely, converted to equity. Nevertheless, Centro is an incredible leveraged property play.
If you treat the $1 billion hybrid stock as a liability there is negative Centro Properties equity at December 31 and more than $20 billion worth of debt scattered through the group. But the hybrid is equity and most of the debt matures beyond 2010. Even though Centro Retail is retaining its cash, Centro Properties is cash positive. If there was a 10 per cent rise in the retail property market, more than $2 billion would be suddenly added to shareholders funds.
Normally, in a highly leveraged situation, there is an equal chance of going bust. But with the banks as equity holders and a board of strong calibre that it is not likely.
Interestingly, today at City Pacific the unit holders in their first mortgage fund vote on whether to keep City Pacific as manager. Part of the Centro rescue effort was Glen Rufrano's work to convince those owning the property Centro was managing that Centro was the best group.
Meanwhile, the appointment of Anna Buduls, Susan Oliver and Robert Tsenin to the Centro Properties board means that Graham Goldie, Sam Kavourakis and Peter Wilkinson will step down. The board had to be renewed but the retiring directors did a mighty job in those dark days.
CER Price at posting:
10.5¢ Sentiment: LT Buy Disclosure: Held
