property revaluations, page-8

  1. 4,481 Posts.
    This article from this mornings NZ news may give insite into property values for sale there.....

    Beleaguered Australian property investor Centro has put all four of its New Zealand shopping centres up for sale in a move that will test investor appetite in a difficult market.


    The ASX-listed Centro Property Group has been in asset disposal mode as it struggled under mountainous debts which resulted in a $A3.9 billion funding shortfall after the sub-prime crisis hit last year.

    The four New Zealand properties being sold are owned by two Centro-related investment vehicles. The Meadowlands shopping centre in Auckland and the Barrington shopping centre in Christchurch are owned by Centro Retail Trust, while the Porirua Mega Centre in Wellington and Kelston shopping centre in Auckland are owned by Centro MCS 20, an investment property syndicate Centro manages.

    While it would be easy to see the sales as part of a broader refinancing package to raise cash and reduce debt, a statement Centro issued when it decided to sell the Porirua and Kelston properties suggests other forces may be at play which could have implications for Australia-based investors with New Zealand property assets.

    Centro valued the Porirua centre at $39.2m and the Kelston centre at $26m, giving the syndicate total assets worth $65.2m, producing net annual income of about $5.1m.

    Based on the equity that investors put into the syndicate when it was formed in 2003, the most recent cash distributions would have provided a return of 9% while the average annual return (including capital gain) since its inception has been around 15.1%.

    So why sell? Three reasons debt, interest rates and exchange rates.

    The syndicate is carrying $30m in debt and Centro hedged the interest rate on the loan at 6.01% in 2003. Since then, the floating mortgage rate has risen to about 9.23% and the loan matures on August 1. The hedging facility will expire then.

    So the debt will need to be refinanced from August 1 and, as Centro noted in its letter to the syndicate's investors, "there has not been a financially viable opportunity to extend expiring hedges beyond August 2008".

    Centro estimated this would increase the syndicate's interest bill by nearly $1m a year.

    And, of course, misery loves company.

    Although the syndicate's assets are in New Zealand, most investors are in Australia. So the exchange rate is an issue.

    It turns out that Centro had also hedged the exchange rate for the syndicate's earnings at $A0.91. That has now fallen below $A0.80 and is likely to keep falling.

    Centro estimated that the combined effects of rising interest rates and strengthening of the Australian dollar against the NZ currency would be likely to reduce the syndicate's cash distributions by two-thirds to just 3%.

    Then there's the not inconsequential matter of future capital gains.

    While that is crystal ball territory, recent announcements by some of the country's largest retailers, such as Briscoe and The Warehouse, indicate that retailers aren't exactly raking it in. And with growing chatter about the clouds of recession forming on the horizon there's likely to be more pain ahead.

    Because capital gains are underpinned by retailers' ability to pay ever higher rents, the prospects for meaningful capital gains, in the short term are not great.

    So you can understand why Centro decided to sell.

    This begs the question of how many other Australian investors with property assets in this country are in a similar situation. The flow of capital across the Tasman, particularly from institutional Australian investors, has been a significant factor in the exceptionally strong performance of this country's commercial property market for the past few years.

    Potential buyers of retail property spoken to by the Sunday Star-Times suggest the tide may have turned. They say changing fundamentals, such as the higher cost of funding, weaker retail sales and that there is a reasonable quantity of retail property on the market, are making them more cautious.
 
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