galleria should be put on the mkt by centro

Hi All,

Time for Centro management to make a few big decisions to have the share price trading substantially closer to NTA and improve returns

They have hinted selling non-core assets (smaller centres) to pay down the new dbt facility, which is required to be amortisied over the next few years.

Why would they want to sell the convenience centres, when really that is the strategy that is at the heart of Centro; the smaller community based shopping centres that have a supermarket as an anchor and smaller retailers that supply everyday needs that are resilient to economic downturns.

Furthermore, the cap rates for community centres are above 8%, which is more than the weighted avg cost of debt, which would decrease EPS even if the assets were sold at book value.

The best thing Centro could do is – PUT GALLERIA ON THE MARKET

At the end of the day, it is in my opinion a non-core asset, making up a substantial part of the portfolio and would be better suited as part of a Westfield portfolio
It would have no shortage of buyers as it is a quality asset
The cap rate
It was valued at $620M as at 31/12/11. Assuming cap rates stay the same and Galleria achieves NOI growth of 2% for this HY (4% for full year), it would be valued at $632M at June 12.
Cap rate according to 30 June 11 supplemental was 6%. It is assumed this has remained constant since the time.
According to debt supplemental, we have $1.843B of drawn facilities as at 31 Dec 11 at a weighted avg interest rate of 7.66%.
The sale of Galleria would result in increased profit of $10.3M or nearly 0.8c per share, a reduction in debt by about 1/3 to just over $1.2B and gearing would reduce to under 30%. NTA assuming sold at book level would remain at $2.35
I had read somewhere that if gearing gets down to a certain level, the margin on the facility would reduce also. This is another benefit.

I cant see any justification for holding onto Galleria. It makes no financial sense to hold onto it irrespective of how quality an asset it is.

Any thoughts?

Cheers