my revised nta take is now 1.32

OK guys here is my revised take of CER's possible NTA position at 31 December 2008. I can say around $1.32 now with much more confidence.

Below are my calcs:


Opening NTA at 30 June 2008:..... $1.27 per share

1. ADD (Reversal of Impairment Charge) $0.144 per share

2 LESS (Reduction in value of derivative contracts with CNP)...... $0.384 per share

3. ADD (Operating distributable profit for half year) $0.072 per share

4. ADD 6.4% decrease in value of US properties (see below as to why this makes NTA higher)............$0.261 per share

5. LESS (10.3% wriredown as per 13 Feb ann) $200m/2.3b = 8.7c

6. ADD (Karingal asset of $100m or subtract CNP debt of $100m) = 4.34

NTA: $1.32





1. The future of SuperLLC is now secure. This amount should be written back. The impairment was made to cover CNP’s negative equity in SuperLLC. As SuperLLC will continue as a going concern, this should be written back


Please refer to the 29 August results ann:

Should there be a default under the Super banking arrangements, ultimately the lenders

under the extension deed to Super, may seek to recover the amounts owing from any of

the properties within Super. In the event that Centro were unable to meet its obligations

in respect to Super, CER would be exposed to the extent of Centro’s negative equity in

Super, limited to CER’s equity investment in the joint venture. CER has not provided any

guarantees to the unsecured lenders of Super.

As at 30 June 2008, Centro’s negative equity was $317 million and CER has impaired its

investment in Super by this amount in recognition of this exposure.



Super LLC's future is now secure. There is no reason to believe now that SuperLLC will default under its banking agreements and as such CER will now not be liable for CNP's obligations with respect to Super.

As such, the US$300m that was written down should now be written back.

At 30 June 08, the US$300m was written down using an exchange rate of 0.96.

The US$300 will now be written back using an exchange rate of 0.6928. (Refer ot page 2 of today's ann)

In AUD terms, this equates to $433m

Therefore the accounting entry will be a writeback of A$314m + a further A$119m credit to either an asset revaluation reserve or a writeback of properties that were previously revised down. As there have already been subsyantial writedowns with respect of its US portfolio, the $119m should be written pack as profit. Refer to AASB 136 Impairment of assets.

($317m / 2.2b shares) = $0.144 per share




2. The derivative contracts will most likely be written down.

CER's ann today read as follows:

CER has historically hedged its interest rate and currency exposures with Centro and to a

lesser extent with external counterparties. As part of the arrangements to progressively

reduce CER’s counterparty risk and the interdependencies between the two organisations,

Centro and CER will terminate their interest rate swaps and forward currency contracts at no cost to CER.


The annual report showed that derivative assets were $407m and derivative liabilities were $68m. Net total $339m. Refer to note 21.

Of the $339m net derivative assets at 30 June 2008, agreements were CNP made up net derivative assets of $233m.

Agreements were external parties made up $106m.

Agreements with CNP as the counterparty make up 68.7% of total hedging agreements ($233m / $339m)

That means going by what was said in today's ann, CER will be able to terminate their interest rate swaps and forward currency contracts at zero cost to CER.

Now what was the total value of the interest rate swaps and forward currency contracts at 30 June 2008. Again referring to 30 June 2008 figures (note 21)

Net forward foreign exchange contracts - net investment hedges: $49

Net Interest rate swap agreements: $28m ($76.6m - $48.6m)

Net Forward foreign exchange contracts: $134.4m

Net total: $211m

Net total of $162m x 68.7% = $145m

Cross curreny exchange contracts do not seem to be included in the termination of the hedging contracts with CNP.

The $145m is the figure that will be automatically written down from the net derivative asset figure of $339m.

Now the difficult part is working out the writedown.

Page 36 of the annual report is a sensitivity analysis. It shows what the writedown would be if the exchange rates increases or decreases by 10%.

Of the net carrying amount of its derivative assets at 30 June 2008 in the amount of $339m, a 10% decrease in the exchange rate will decrease the value of the assets by $353m

An exchange rate of 0.96 was used at 30 June 2008 to value assets and liabilities.

Now as calculated before, approximately a net figure of $145m will automatically be written down and any derivative assets associated with that $145m can not be written down further.

So of the $339m of derivative assets at 30 June 2008, only derivative assets in the amount of $194m ($339m - $145m) are subject to be written down to zero and beyond. This means that a net liability derivative position can be shown in the accounts.

Now going back to the sensitivity analysis, a 10% decrease in the exchange rate will decrease the derivative assets by $246m ($353m x 0.697)

How much has the exchange rate weakended from 30 June 2008 to 31 Dec 08:

0.96

10% decrease = AUD/USD 0.864 = $246m decrease

10% decrease from 0.864 = AUD/USD 0.778 = total $492m decrease ($246 + $246)

10% decrease from 0.778 = AUD/USD 0.699 = total $738m decrease ($246 + $246 + $246)

The writedown in derivative assets would equal:

$145m (automatic writedown)

+ $738m

= $883m

I believe we should see a writedown of $883m in derivative assets at 31 Dec 08. Total writedown in cents per shares is $883m / 2.3b = 38.4c

The $145m is not subject to further writedowns as CER does not need to incur any additional costs to close out those contracts.




3. Refer to thread distributable income now at 7.2c.




4. For point 4, please refer to supplemental report and presentation and below

30 June 2008

US$6.1b (value of properties at 30 June) / 0.96 (exchange rate used at 30 June) = AUD$6.3b

US$3.6b (US liabilities at 30 June) / 0.96 = AUD$3.75b

Net US assets in AUD = AUD$6.3b - AUD$3.75b = AUD$2.55b



31 December 2008

US$6.07b x (1-0.064) = US$5.68b

US$5.68b / 0.692 (exchange rate at 31/12 (refer to 15 Jan ann)) = AUD$8.21b

US$3.5b (about $100m paid off during 6 months ending 31 Dec 08) / 0.692 = AUD$5.06b

Net US assets in AUD = AUD$8.21- AUD$5.06b = AUD$3.15b

Increase in Net assets = AUD$3.15b – AUD$2.55b = AUD$0.60b

AUD$0.60b/2.3b = $0.261 increase in NTA

I have explained the exchange rate impact in many threads on the CER board. This will impact CER favourably.



6. Please refer to Centro Karingal thread. Either the asset will be added to the accounts or the debt that was secured against Karingal will be removed. There will need to be a $100m addition in net assets in any case. I have referred this to CER and am waiting a response.