Source: The Weekend Australian Financial Review newspaper [Page...

Source: The Weekend Australian Financial Review newspaper [Page 15]
May 17-18, 2008

Centro warns on accounts
Report: Mathew Dunckley
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KEY POINTS

Centro revealed a $3.9 billion funding shortfall in December.

That sent its share price diving from $5.70 to as low as 23.5c.

Its US subsidiary reported rising costs but better rental income.

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Centro Properties Group has been forced to admit that its accounts cannot be trusted, as it battles to regain investor confidence.

In startling admissions contained in the first-quarter accounts for its Centro NP LLC subsidiary, filed with the US Securities and Exchange Commission, Centro confessed that its own public statements about its financial position were unreliable.

"We identified material weaknesses in connection with our internal controls over financial reporting that, unless remedied, could have a material adverse effect on our external financial reporting," it said, adding that the situation had not been fixed by the end of the quarter.

"With a failure to achieve and maintain effective internal control over financial reporting, there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis."

Centro has been living at the mercy of its banks since revealing a $3.9 billion funding shortfall in December that sent the company's share price diving from $5.70 to as low as 23.5c.

Angry investors have mounted a class action alleging inadequate disclosure about the company's debt position.

Centro first admitted to its reporting shortcomings in its December 31 accounts, also filed in the US, and flagged problems with disclosure in its operations, accounting and legal functions.

In particular, there were issues in the bedding down of Centro's complex $US5 billion takeover of New Plan Excel Realty Trust.

As previously reported, Centro said it had also had difficulties with its accounting of asset impairment, which resulted in an incorrect reporting of the company's intangible assets.

A corrected version was subsequently issued showing an additional $US77.7 million impairment charge on intangible assets.

Centro's intangible assets were correctly stated in Australia in its half-year result in February.

In the statement, the company said that while its processes might have caused concern it had still managed to produce accurate numbers.

"While this material weakness did not result in any improper accounting by us, management is committed to remedying the deficiency," it said.

It is understood the company included the references to the 'material weakness' at the insistence of its auditor PricewaterhouseCoopers.

A spokesman for the Australian Securities Exchange said the regulator had reviewed the statement and discussed the matter with Centro.

Because the filing applied to an entity that was not listed on the ASX, it was not subject to its disclosure rules.

"The ASX has reminded Centro of its obligations under the rules," the spokesman said. "The company believes that the SEC filing does not affect the integrity of the information given to the local market."

The most recent accounts detailing rising expenses, linked primarily to depreciation allowances, leading Centro NP LLC to post a loss of $US6.8 million ($7.3 million) compared with a profit of $US27.4 million for the same period in the previous year.

In some good news, Centro said rental income for the portfolio was up 9.5 per cent to $US96.2 million from the same quarter in 2007.

That figure was boosted by new acquisitions ($US6.4 million) and a change in the accounting treatment of below market leases (worth $US11.1 million).

Elsewhere in the accounts, there was a reference to the need to pay out unit holders from an existing New Plan deal at a cost of about $US37.2 million by June 27.

During the first three months of 2008, the company also sold a shopping centre and a parcel of land reaping about $US9.6 million.

An Australian Securities and Investments Commission spokeswoman said Centro had continuous disclosure obligations but would not comment on whether it had met them.

Centro shares rose 2.5c to 36.5c on Friday, after a tough week.


Ends.

Cheers, Pie :-)