Nursery, you said“I tend to take a simpler approach. I ignore...

Nursery, you said

“I tend to take a simpler approach. I ignore the change in property values as they are only important if they are sold or for sale. I look at the income and the expenditure. If the income can consistantly exceed the expenditure then there must be a profit. If the business is profitable then it should survive. The share price should relate to the profitability more than relate to the asset.”

After 15 January, once the recapitalisation plan is officially in place, then yes, distributable profit will be more directly related to available profit.

Important to note page 5 of the annual report this year:

“A clearly articulated sustainable distribution policy is

necessary. Although the FY08 distribution was related

to taxable income, once our capitalisation is stabilised,

distributions will be more directly related to available

cashflow;”

What is important to note is that even the impairment charge does not get written back in the short term and even if the hedging contracts get written off in full and a liability is shown to CNP, the US properties get written up in A$ terms because of the lower exchange rate, it doesnt really matter, this have no impact at all on cashflow.

In actual fact, although NTA may be reduced, distributable profit will actually increase. CER’s hedging policy is to hedge foreign income at 90 to 100% and interest rates at about 75%.

Therefore the fall in the exchange rate and interest rates will actually marginally improve distributable income.

The supplemental report shows that there is A$1.3b in debts that are subject to variable rates. None of the A$ debts seem to be fixed. The report says that all variable rates are not subject to hedging.

Interest rates have come down by 300 basis points. Even if CER do not enjoy the full cut in rates, this should bring their Australian interest payments down quite considerably.

We know that no dilution of capital is going to occur with CER.

They are going to be given a 2 year refinancing deal, with no strings attached and be given the opportunity to ride out the current issues it has with its JV investment in SuperLLC.

Which then begs the question, is NTA all that relevant.

I used to work in insolvency and NTA is extremely relevant when winding up a company or a company is in financial distress and worst case scenarios need to be explored.

Once CER get the extension, are they really going to be in any financial distress or in any danger of going under?

I would say not.

If every company on the ASX was valued on an NTA basis rather than a DCF or PE ratio basis then the All Ords would be languishing at 1000 points.

We should be looking at CER on a distributable income basis.

Does everyone know that CER made $105.71m distributable income for the first half FY08 (refer to ann 28/02) and a total distributable income for FY08 of $256m.

Their distributable income in the second half of FY08 was $150.29.

The merger with Centro America in November last year became didnt really affect the bottom line until the second half of FY08.

The maarket has forgotten how subsantial a merger this was for CER.

This increased CER's assets substantially at a fairly mild LVR.

Revenue was up for the 3rd quarter 08 was up. 4.8% for Australian assets and 0.3% for US assets.

We are going to see distributable income greater than $150.29million for the first half of FY09.

$A interest payments should have come down during this half also as mentioned above.

Distributable income may be around the A$160m mark.

Then we can work out what the fair value is for a company earning $320m growing at 4% (estimated CPI) per year in perpetuity.

We're looking at a $3 billion plus company which I believe is quite conservative.

I may punch some numbers together soon

Anyway Im off to lunch now

Cheers