email to major holders outlining concerns

Below is an email I have sent to a few major holders of CER with a high level summary of the main problems associated with the proposal.

I still believe the best way forward to maximise return to CER holders is:
- Market CER's portfolio for sale
- Asset swap to obtain 100% interests in all its properties(I indicated how this could be done 2 weeks ago)
- Sweetener to merger plan. If CNP can get 5c for having negative equity, surely CNP debt holders could waive the related party loan of about $111M that is payable from CER to CNP. That makes just as much sense as paying out CNP security holders.

Quite frankly it doesnt bother me if CNP goes into admin. Let it burn. yes a receiver/administrator would come in but the CNP secured debt holders would simply take possession of the secured assets anyway! CNP holders dont get paid out (saving secured debt holders some dough) and CER can buy back the mgmt rights at a fair price. Also, as a potential restructuring, an asset swap can be arranged for CER or CER could market its entire portfolio for sale.

While all this is happening, people will still go to supermarkets within CER's centres, cap rates on properties will be the same (probably still come in further as still very high relative to its peers), gearing will continue to fall (CER's debt levels are not a burden. Its NOI is substantially higher than its look forward interest expense not even taking into account probable lower future margins as a result of lower debt levels). Supplemental just released on CER website for 30/06/11 shows NOI and interest payable.

Look I am sure if I were working on a plan in an official capacity for the company, I would be able to nut out a more concrete plan (I would happily do it for free also!) but there are definitely some things that can be done to improve our return that dont involve the proposed terms of the merger.

Anyway below is the email I wrote.

Cheers



Dear xxxxxx,

I am writing in relation to the amalgamation proposal announced by the Centro Group earlier this month.

I understand you are acting on behalf of xxxxxxxx.

I am a passionate holder of CER and have grave concerns as to whether this proposal is in the best interests of CER holders.

I have expressed my concerns quite clearly through various public investment forums and those concerns are replicated by many in the CER community.

I will definitely be voting "no" to the proposal.

A high level summary of my concerns are:

- No premium to be paid by the unlisted syndicates who are being provided with a liquid investment

- Looking at NTA solely as the variable dependent on the amount of equity issued is a completely flawed formula as gearing is not taken into account. CER has not been rewarded for reducing its gearing considerably in the last year.

- CER had a more favourable valuation uplift on its portfolio than CNP during the period Dec 10 to Jun 11 (Refer to movements in cap rates during this period), however, as the 29% equity CER will be given in the pending merger is based on Dec 10 valuations, CNP will erode some of the valuation uplift from CER.

- The $240M CNP is vending into the new REIT for management fees, which CER effectively is paying 29% of ($70M), is an excessive cost to CER. Ive valued the purchase from CNP at a price earnings of 35 taking into account CNP's only material revenue sources from CER on a look forward basis would be 6% of gross income and 10% of 1st year gross income from new leases. This assumes CNP realises say a 20% margin after paying centre staff wages, maintenance etc.

- CER is likely to earn a better than 6% return on equity in its current form (6% return on equity was advised in the merger announcement) and avoid paying approximately $70M for the managment fees CNP would vend in.

- CER's gearing is currently under 41% (taking into account CER has $168M cash which it will use for the repayment of the CMBS 2006-1 which is expected to occur on 20 September 2011. Refer to page 5 in results ann). This is expected to increase to the "low 40s" post merger.

I have other concerns but these are the ones I am particularly concerned about.

The market valuing CER significantly below its revised NTA of 44c signifies a rejection of the current proposal.

I have considered a few ways for CER to maximise value, one being the sale of its entire portfolio.

I would be very interested to hear your thoughts of my above concerns.

Please do not hesitate to contact me should you wish to discuss.