my revised nta estimate is 2.08 per share

The following is my revised calculation of CER’s NTA:


Value of US properties:

US properties at June 30: US$6.1b

Decrease in value of US properties since June 30: 3%

I think 3% is fair given the following reasons:

- look at the US assets CER have sold since 30 June. Three properties sold during this time returned 2% less than June 30 book values
- NOI growth during the Sept quarter was 0.3% including developments
- Four of CER’s top 10 tenants in the US are supermarket companies including Kroger its second biggest tenant who produced a 4.7% increase in revenue.
- Even if Circuit City, and Linen n things rescind all their leases that would equate to 2% (0.8% + 1.2%) of CER’s total revenue.

Therefore total value of US properties as at today: US$5.92b

The value of the US properties stated in its functional currency (AUD): $9.47b
(This is applying an AUD:USD exchange rate of 0.625)

Value of US debt:

US debt as at 30 June: US$3.6b (Taken from supplemental report)

Less debt paid off from asset sales since 30 June: US$0.1b
(I’m assuming that all the assets that were sold during the Sept quarter as per ann on 17 Nov were applied to SuperLLC debt)

US debt as at today: US$3.5b

The value of US debt in its functional currency (AUD): $5.6b
(Using exchange rate of 0.625)

NTA of US portfolio in AUD: $3.87b/2.2b shares = $1.76 per share


Australasian portfolio:

Value of Australasian portfolio 30 June: $2.1b

Less assets sold: $0.1b (NZ properties, southport)

Valuation change since 30 June: 0%

My reasons are:

- Occupancy rate increased from 99.4% to 99.7% (50% of vacant spaces have been filled)
- Top 2 tenants in Australia are Woolworths and Wesfarmers (12% and 10.6% respectively) They are probably the two best tenants to have in Australia in an economic downturn.
- Only 4.9% of leases expire in the second half of 2008 or 195 leases (refer to supplemental report) 137 leases in Australia were renewed during the September quarter (refer to Nov 17 ann)
- Net Operating Income rose by 4.8% during the Sep quarter
- It is a well known fact that GDP would have been much higher in the last year had NSW not been such a basketcase. NSW has experienced negative growth in the last 12 months whilst the rest of Australia has maintained strong growth. Only 13% of CER’s portfolio is in NSW whilst 31% are in VIC
- Interest rates have fallen by 200 basis points since 30 June. This increases the yields on the Australian properties by 2% above the risk free rate than previously. Assuming that the weighted average cap rates come down by 2%, this would increase the value of the Australian portfolio substantially. Think of it like a bond. When interest rates decline, the value of the bond increases and the yield to maturity declines.

Anyway Im taking a very conservative approach and leaving the valuation of Australian properties at the same level as 30 June

Therefore the value of Australian properties now is: $2.1b - $0.1b = $2b


The AUD debt levels are: $1.3b

NTA of Australian portfolio: $0.7b/2.2b shares = $0.32

Total NTA of company is $2.08 per share

It should also be noted that the Australian debt is all subject to variable interest rates (pg 44 of supplemental report)

Variable interest rates are not subject to hedging (pg 45 of report)

Assuming that the banks have passed the full 2% cut for CER, then it would save $26m per year in Australian variable interest repayments.

Also it should be noted that only $370m is due by Dec 08. That is the CER Cash Advance Facility, which I assume is an overdraft facility.

Most of the debt due by 15 Dec relates to SuperLLC. Even if SuperLLC is put into administration, the NTA would be as follows:

Assets: $6.1b - $2.7b (Refer to CER presentation) = US$3.4b = AUD$5.44b
Using ER of 0.625

Debt: $3.5b - $2b (Refer to CER presentation) = $US1.5b = AUD$2.4b
Using ER of 0.625

NTA: $3.04b/2.2b shares on issue = $1.38 per share

That is a $0.38 loss. The reason why it is more than $0.28 as stated in the annual report/presentation is because of the strengthening of the USD since 30 June.

With regards to the pending class action, I cant see it hurting CER as much as CNP. The share price fell way less in % terms after the ann was made in Dec last year. Also CNP own 51% in CER and obviously would not be a party to an adverse findings against CER.

Also worthy to note that although CER is in a JV agreement with CNP over its investment in SuperLLC, read page 5 of the annual report:

CER currently has individual property co-ownership
positions with Centro in 28 of 33 properties in Australia
and 37 of 419 properties in the US;

Only 37 of 419 properties in the US are co-owned between the two companies. Even if CNP is put into admin, this should not result in a protracted mess with CNP attempting to sell its share in jointly owned properties with CER.

Anyway enough from me.

My stance on CER is pretty clear!!

Cheers