distributable profit forecast 31.12.08 is 7.2c

I have attempted to calculate the distributable profit of CER for the half year ending 31 December 2008.

The distributable profit for FY08 was as follows:

Australian property income: $108.7m
US property income: $219.1m
Hedge Income: $64.3m

Total income: $392.1m

Management Fees: $30.4m

EBIT: $361.7m

Interest Expense: $105.7m

Distributable Income: $256m


CER share of equity accounted profit or loss for FY08 (29 Aug 08 ann) in AUD.

Centro Watt America REIT - $9,793K
Centro Super holding Trust 1 - $66,422K
Centro Super Holding Trust 3 - $24,783K
Centro GA America - $68,951K
Domestic - $95,020K


CER share of equity accounted profit or loss for HY ended 31 Dec 07 (28 Feb 08 ann, pg 23).

Centro Watt America REIT - $7,781K
Centro Super holding Trust 1 - $34,923K
Centro Super Holding Trust 3 - $7,778K
Centro GA America - $17,185K
Domestic - $42,876K


Therefore by process of elimination, the results for the HY ended 30 June 2008 would be as follows:

Centro Watt America REIT - $2,012K
Centro Super holding Trust 1 - $31,499K
Centro Super Holding Trust 3 - $17,005K
Centro GA America - $51,766K
Domestic - $52,144K


The above share of net profit is derived from the share of joint venture assets and liabilities. The value of CER's investments accounted for using the equity method was $3.3b at 30 June 2008.

CER also had investment property amounting to $786m as at 30 June 2008. This is on the balance sheet.

The list of properties and the revenue generated from these properties for FY08 are shown below. The revenue figures are taken from the supplemental report dated 29 August 2008. The properties are taken from the Appendix 4d on 29 August 2008

Please note that the NZ properties CER owned are no longer applicable as they have been sold so I have not included them in the analysis going forward.


Barn Plaza - 2,794,654

Bethlehem - 3,201,060

Bristol - 1,307,194

Chesterbrrok - 1,228,425

Collegetown - 1,537,195

Fox Run - 2,745,252

Groton - 2,440,792

Marlton - 4,129,130 -

Oakdale - 2,376,988 -

ocean heights 2,793,937

perkins farms 1,774,767

stratford - 959,953
The Shoppes at Valley Forge 1,207,090

valley fair - 1,438,338 -

village at newtown - 3,506,957 -

village square - 367,359

village west - 1,920,928

whitehall square - 2,628,359

Total ABR of US investment properties for FY08 - $38,358K


albany - 1,768,268

mount gambier - 3,692,638

warnbro fair - 3,756,626

Total ABR of AUD investment properties for FY08 - $9,218K



If we want to reconcile the US investment income figure of $218m, this would be done as follows:

Centro Watt America REIT - $9,793K
Centro Super holding Trust 1 - $66,422K
Centro Super Holding Trust 3 - $24,783K
Centro GA America - $68,951K

+ Total ABR of US investment properties for FY08 in AUD (This needs to be translated into AUD) - ($38,358K / 0.96) = $40,000K

= $210m

The $8m difference would come from CER's holdings in MCS38, MCS39 and MCS40. These unlisted syndicates are concentrated on US properties only. The value of these syndicates was $200m as at 30 June 2008.

Lets say that $8m income was derived from these assets during FY08.

If we want to reconcile the Australian property income figure of $108.7m, this would be done as follows:

Domestic - $95,020K
+ Total ABR of AUD investment properties for FY08 - $9,218K
+ Total ABR from NZ properties - Approx $4m

= $108m


The Hedge Income figure is more difficult to work out.

The Hedge Income is the realised gain on the mark to market of derivatives. Pg 48 of annual report.

As the weighted average of the FX income hedging is 0.7577 (page 30 of 29 Aug presentation), this is going to show up most likely as a loss for the half year ended 31 Dec 2008.

The same page of the presentation shows that only $45m of FX income was hedged for the period 1 July 08 to 31 Dec 08. Assuming that the swap agreements matured at an average of 0.70 during this half year, the loss that would show in their books would be ($45m / 0.7) - ($45m / 0.75) = $4m

The realised loss will not be as large as you think for this reason. Mind you the exchange rate hovered in the 90s for the first few months of this finanical year as well so there may not be a realised loss in hedge income for this half year.

CER is overhedged. Investor services have confirmed this to me . The reason for this is because the cashflow from the CSF merger and the JV with CNP over SuperLLC are ringfenced for the timebeing.

I believe once a recapitalisation place is officially put into place next month, CER's position may change and CER may become underhedged. Only $75m in FX income is hedged for the period 1 Jan 09 to 30 June 09.

OK my calculation of distributable profit for this half year is as follows:

Australian income:

Domestic income earned from JV assets for HY ended 30 June 2008 - $52,144K (as noted earlier)
Total ABR of AUD investment properties for FY08 - $9,218K (not including NZ properties). Lets assume that of the $9,218K earned for the year, $4,800K was earned in the second half of FY08 and $4,400K was earned in the first half.

According to quarterly report released on 17 November 2008, NOI for Australian properties grew by about 5% for Sep quarter. Lets assume that 5% growth is consistent for the half year ended 31 Dec 2008.

Aust income would be:

$52,144K * (1.05/2) = $53,448k (5% NOI growth is dividend by 2 as we are only looking at half year)

+ $4,800 * (1.05/2) = $4,920k

= $58,368k


US income would be:

As noted earlier, income for the HY ended 30 June 2008 would be:

Centro Watt America REIT - $2,012K
Centro Super holding Trust 1 - $31,499K
Centro Super Holding Trust 3 - $17,005K
Centro GA America - $51,766K
Centro MCS syndicates - $8mil (approximate figure calculated earlier)
Total ABR of US investment properties for FY08 US$38,358K. Total for HY ended 30 June 2008 - US$19,000k (approx)

According to the Sept 08 quarterly report, NOI growth was 0.3%. Lets assume that NOI decreases slightly for the Dec quarter and makes NOI growth nil ofr the HY ending 31 Dec 2008.

US income for the period 1 July 2008 to 31 Dec 2008 would be as follows:

The $2,012K , $31,499K, $17,005k and $51,766K were stated in AUD. We need to bring this back to USD and then convert the USD into AUD at the rate on 31 December 2008. The rate used on 30 June 2008 was 0.96. CER investor services have also confirmed to me that the USD income figure was calculated using an exchange rate of 0.96. Lets assume the exchange rate as at close 31 December 2008 is 0.70.

(($2,012K * 0.96) / 0.7 ) = $2,759K

(($31,499K x 0.96) / 0.7 ) = $43,198K

(($17,005K x 0.96) / 0.7 ) = $23,321K

(($51,766K x 0.96) / 0.7 ) = $70,993K

($19,000K / 0.7) = $27,142K

$8,000K / 0.7 = $11,428K

= US income $178,841


Lets assume that management fees remain at $30.4m and interest expense remains at $105.7m. (Divide both by 2 as its only a half year report)

The interest expense of $105.7m would be drawn from the liabilities shown in note 14 of the annual report. Although interest expenses have come down, lets assume there is no change is interest expenses.

OK here is the final calc of distributable income for the HY 31 Dec 08.

Aust income: $58.4m
US income: $178.8m
Hedge loss: ($4m)

Total income: $233.2m

Management fees: ($15.2m)

EBIT: $218m

Interest expense: ($53m)

Distributable income: $165m

Shares on issue: 2,286m

Distributable income per security: 7.2c per share


The reason for the increase is predominately related to 2 factors.

1) The lower exchange rate and
2) The merger with CSF took place in November 2007. FY09 will be the first full year that CER will enjoy the benefits of the merger. You can see how much more NOI CSF contributed to the bottom line in the second half of FY08 as opposed to the first half.


Anyway that is my analysis

Would love to get your thoughts on this

Cheers