not moving much either way of late, page-22

The problem is indeed the debt ratio Centro have. It all comes back to the lowest demoniator with lenders. Does the company we are lending to have enough assets that we can sell off to cover the loan should they default. And the answer they must see is 'No'.

As a fairly seasoned property investor, I can rest assure you that LVR is NOT the be all and end all. The key driver in how much one can borrow is actually income. Most property investors will know what I mean when I talk about the "income or servicing wall". You can have x number of properties valued by the bank at 2 million (usually 80% of market value), with an LVR of 50%. However, if the net servicing cost (which includes income from net rental, share divvy, salary, etc) exceeds 30-35%, you'd find it hard to get full doc loan. This is the one single reason why property investors can only accumulate properties slowly - which allows time for equity to build as well as rental income to rise.

In Centro's case, it's not the LVR in question in my view. They have also stated in one of their announcements that their financiers would only lend them money if they were to restructure their model. My interpretation of the key objective behind this restructure is to (1) reduce their debt position, which will reduce their servicing obligation (2) restructure their debt so that they are not so vulnerable to the volatile short term money market (3) to strengthen their balance sheet so that they can absorb any short term spike in interest rates or short term collapse in rental yield from their US shopping malls.

One cannot view this situation without looking at the root of the issue (US housing market collapsing). Whilst corporate US has seemingly remained resilient thus far (supported by continuing strong retail spending), there is now a question of doubt with the latest retail figure and consumer confidence showing some weakness. For as long as corporate US stands up, then shopping mall along with other commercial properties should be fine. However, if US does go into recession, it is in the lender's best interests to ensure that Centro can survive.

Of course, the benefit of these discussion boards is the discussion of balanced but opposite views. So whilst we may agree to disagree, it's been fun :o)

Time will tell who's right ;o) I only have a relatively small exposure to CNP, so won't cry if I am to be proven wrong.

Cheers,
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