Australia's Centro says U.S. deal fails to close

MELBOURNE (Reuters) - Centro Properties Group (CNP.AX: Quote, Profile, Research, Stock Buzz), one of the highest profile Australian victims of the global credit crunch, has failed to close a $714 million deal to sell 29 U.S. malls just two weeks ahead of a critical bank refinancing deadline, Centro said on Monday.

Centro had announced the sale in principle in July. It was the only major asset sale the troubled property firm had arranged this year, since it began trying to sell assets to pay down debt to allay banks' concerns.

Centro, which owns 665 U.S. shopping malls and is the third-largest mall manager there, and its affiliates have some A$7.4 billion ($6.1 billion) of debt to refinance by the end of the year, a portion of which expires September 30.

The deal had been for 29 of the 31 U.S. shopping malls in the Centro America Fund and was subject to due diligence by the unnamed buyer.. . . more

Centro Takes Another Hit

A month after selling a 5.1-million-square-foot chunk from its U.S. portfolio, Centro Properties Group reported that one of its domestic units, Centro NP, experienced a second quarter loss of almost $300 million, rekindling questions about its viability as a going concern.

The Australian listed property trust has been trying to unload the bulk of the assets in its U.S. portfolio amid a sluggish market in order to repay $1.1 billion to its U.S. lenders by Sept. 30 and A$2.3 billion to its Australian lenders by Dec. 15. It also needs to repay $450 million to its U.S. private placement note holders by Dec. 15. The company took on billions of dollars in debt with its 2007 acquisition of New York-based shopping center REIT New Plan.

Centro had planned to raise cash through massive asset sales in both the United States and Australia. After agreeing to sell 29 of its choice properties from its 106.5-million-square-foot U.S. portfolio to a private real estate advisor for $714 million in July, it now has to dispose of its weaker assets in an environment that does not favor sellers. The properties sold in July, which came from the Centro America Fund, were purchased at a 10 percent discount to the assets’ previous book value.

“It’s already tough to sell assets in this environment, and having a weak portfolio is difficult,” says Rich Moore, an analyst with RBC Capital Markets. “I think it will affect their ability to sell.”

Last week, in a U.S. Securities and Exchange Commission filing, Centro NP, one of Centro Properties Group’s U.S. divisions, said it lost $299 million in the quarter ended June 30. The loss resulted in a $95 million impairment charge to its properties. With its asset value off almost 9 percent in the first half of the year, the report noted there is “substantial doubt about the company’s ability to continue as a going concern, given that the company’s liquidity is subject to, among other things, its ability to negotiate extensions of credit facilities.”

The news does not mean Centro NP faces imminent demise, notes Merrie Frankel, vice president and senior credit officer with Moody’s Investors Service, a New York City-based credit rating agency. Given that Centro is under constant scrutiny because of its credit problems, the firm had to include that statement in the report for accounting purposes, she says.

Centro MCS Manager Ltd., the entity responsible for Centro Retail Trust and Centro Retail Ltd., will report its 2008 results to the Australian Securities Exchange on Friday.

The development with Centro NP raises serious concerns about whether the firm will be able to sell the remainder of its U.S. assets for a sufficient amount of money to meet its loan obligations.

Centro, on its Web site, stated Monday it will not be able to meet those deadlines and has started talks with its bankers about a new extension. A statement from Centro company secretary Elizabeth Hourigan, reads: “Discussions with the lenders are at a preliminary stage and no assurance can be given that further debt extensions will be achieved beyond the expiry of the current debt extensions on September 30.”

Centro officials could not be reached for comment.

Even before the latest write-down, Centro was aware it would face some challenges in selling the rest of its U.S. properties. The firm chose and marketed the properties from its Centro America Fund as a portfolio because most of them continued to bring in solid results and were located in the Northeast, says Bernie Haddigan, national director of the retail group with the Encino, Calif.-based brokerage firm Marcus & Millichap Real Estate Investment Services.

Now, however, the firm is marketing most of the remaining assets on an individual basis, Haddigan notes.

“Centro America Fund properties were of higher quality than Centro’s [other] U.S. property [portfolio], which was valued in December 2007 on a 6.95 percent cap rate,” wrote Callum Bramah, analyst for Macquarie Research Equities, last month. “This leads to our belief that on any further U.S. asset sales, cap rate expansion of more than 70 basis points is likely.”

On Monday, Centro shares fell 9 percent to A$0.20.

Source: Retail Traffic

Centro Obtains a Reprieve on Debt Shopping Mall Owner Gets 7-month Extension on $2.6 Billion

Centro Properties Group, one of the highest-profile Australian casualties of the global credit crunch, said Thursday that banks had agreed to a seven-month extension on about 2.8 billion Australian dollars of maturing debt. Centro, which owns around 700 shopping malls in the United States, borrowed heavily last year to finance a rapid expansion there. But the company ran into trouble in December after credit markets dried up, losing its usual avenues of borrowing and putting it under pressure to sell assets to raise cash. Analysts said that the extension gave Centro a reprieve to push on with a planned restructuring but warned that the risks were still high.

"Nothing has changed in the fundamental view," said Justin Blaess, director of property securities for ING Investment Management. "The company is highly geared, it's in a distressed state, and it's got deadlines looming which could decide the fate of the company, at a time when markets are weak, debt costs are high and there are more sellers than buyers in real estate markets."

The maturing debt extended to Dec. 15 consists of 2.3 billion dollars, or about $2.17 billion owed to Australian banks and $450 million owed to U.S. private note holders. The extension is subject to a number of conditions, including finalizing certain arrangements between creditors by May 30. The deal also triggers an extension to Sept. 30 of 2.5 billion dollars of U.S. bank debt associated with the Centro affiliate Centro Retail Trust, which had been subject to the Australian portion of debt getting an extension. Centro, which had faced a Wednesday refinancing deadline after getting only a seven-day extension last week, also said it continued to pursue a number of previously announced initiatives. Those include seeking buyers for its unlisted funds, Centro Australia Wholesale Fund and Centro America Fund. The company also said indicative proposals had been received from a number of investment groups relating to a recapitalization of the group, some of which it would continue to work on.

About two-thirds of Centro's shopping malls are in the United States, with the remainder in Australia and New Zealand. It holds the assets through a complex network of managed funds.
The main Australian bankers handling Centro's debt are Australia & New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and St. George Bank. It is also dealing with JPMorgan and Bank of America. Centro Properties shares last traded at 47 cents, 95 percent below the high of 10.06 dollars reached May 7, 2007. They were due to resume trading Friday after being halted Wednesday, the day before the deadline for the debt extension.

Source: Plain Vanilla Shell