reply from is, page-9

Hey all

Just a few points Id like to make:

- If interest rates come down by 50 basis points today, we are going to see a significant saving in Aust interest expenses.

As at 31 Dec 08, interest expense was as follows:


Bank - CER Cash Advance Facility.................2/12/2008... 4.30%......336.60... 14.47m
CER (Toombul, Taigum, Brooks Gardens).. 12/12/2010.... 6.90%.......130.50... 9.00m
CSIF B (Club Facility) 1.............................. 5/11/2009.... 6.40%.......289.30... 18.52m
Centro CMBS Series 2............................... 4/12/2009..... 4.92%...... 155.00... 7.63m
CMBS 2006-1 (Aust)................................ 20-Dec-09.... 4.80%...... 155.40... 7.46m
CMBS 2006-1 (Aust)................................ 20/12/2010... 4.80%....... 171.10.. 8.21m

Total debt: 1,237.90m

Estimated int expense as at 31/12/08: 65.29m



As at 30 June 08:

....................................................................30/06/08

Bank - CER Cash Advance Facility.............. 8.14%.......370.00.... 30.12m
CER (Toombul, Taigum, Brooks Gardens).....7.73%......139.50......10.78m
CSIF B (Club Facility)...................................8.38%......333.70.......27.96m
Centro CMBS Series 2.................................8.09%.......155.00.......12.54m
CMBS 2006-1 (Aust)..................................8.37%.......155.40.......13.07m
CMBS 2006-1 (Aust)..................................8.37%........171.10.......14.32m



Total debt: 1,324.70m

Est interest expense as at 30/06/08: 108.79m


Interest expense has dropped $43.5m in the six months ending 31 Dec 08.

This is a drop of 40%.

Unless NOI for the Australian portfolio has dropped by 40% during this time, I do not see how its Australian portfolio can be worse off.

The NOI for the Australian portfolio has actually increased by 3.5% according to the HY results announcement. NOI for the HY stands at $58m (pg 5 of supplemental)




Interest rates decreased by 300 basis points during the 6 months ending 31 Dec 08.

It looks as though CER was passed on the full benefits of the interest rate cuts on most of their Aust debt facilities.

Interest rates fell by another 1% in February and may fall by another 0.5% today.

This will decrease the total cost of debt by another significant amount. Cost of Aust debt may now be around the $60m mark.

Australia debt is only hedged at 60% now as opposed to 100% six months ago thanks to the termination of hedging agreements with CNP.

In 2 years the hedging percentage decreases significantly to about 25%.

Not only will CER be paying less to the banks but they also stand to be benefit greatly from their current underhedged position.

As at 30 June 2008, the cost of debt almost equalled NOI. To say that CER is significantly better off now would be an understatement.


Even if SuperLLC and CSF goes into admin (a remote possiblity) this would have no effect on its Australian portfolio as the CSF and Super assets are held within a trust with limited security being held outside of these trust structures.

If we do have another interest rate cut today, it would be prudent of management to bulk up its hedging of Australian debt to protect the company from rises in interest rates. I doubt interest rates will be at 2-3% in the long term.

CER will stand to gain significantly from this.

Cheers