article in the australian..

Lend Lease makes a second attempt to buy Centro Florence Chong From: The Australian May 19, 2011 12:00AM

LEND Lease is making a second, aggressive attempt to buy the troubled Centro Properties Group's $7.2 billion Australian shopping centre portfolio, according to industry sources.
If successful, Lend Lease's latest bid would end the proposed merger of Centro Properties Group and Centro Retail Trust, which would form one of Australia's biggest listed retail owners.

Sources said that Lend Lease's renewed go-it-alone-bid put directly to Centro's controlling hedge fund investors could disrupt work on the proposed merger.

Other sources close to Centro said that, irrespective of Lend Lease's attempt, a prospectus/product disclosure statement was being prepared for release by early September.

In Australia, Centro-managed trusts controlled 103 shopping centres, with a value of $7.2bn at the end of last year. Some of Centro's biggest assets include regional shopping centres Centro Galleria in Western Australia, Centro The Glen in Victoria and Centro Colonnades in South Australia. In November, The Australian reported Lend Lease had formed a consortium that included the Government of Singapore Investment Corporation and US-based NRDC-Equity Partners, which made a $17bn bid for Centro's US and Australian assets.

The approach prompted Centro to formally market its centres and in March US private equity giant Blackstone Group struck a $9.4bn deal to buy Centro's US shopping malls.

"Lend Lease definitely wants Centro's Australian assets," said a fund manager, who declined to be named. "They have been very aggressive and are talking to the hedge funds in New York as to what they could get."

He said if Lend Lease made a cash bid at or close to net tangible assets the hedge funds would gladly accept it rather than take a risk on merging the Centro trusts.

"The hedge funds are likely to be keen to do a deal and take their money now," said this source. "But it is a question of how much Lend Lease is prepared to pay.

A Lend Lease spokeswoman said the company would not comment on speculation. Another source said GIC was looking at other deals, which leaves the question of how Lend Lease would fund such a large acquisition. It still has assets in New Zealand from its acquisition of the unlisted $1.4bn ING Retail Trust in 2009 that could be sold.

Others suggested Lend Lease had access to several capital partners and an option could be to form a new wholesale trust.

"It could pick the large centres which it wants to keep and offload the others. There is demand for good retail assets," said a fund manager, adding that Stockland, for instance, is still keen to acquire smaller sub-regional centres.

"Lend Lease had an opportunity to bid for these assets and they failed," said a source close to a Centro fund.

"Now they are allegedly marketing to the hedge funds which own CNP (Centro Properties Group) debt. The hedge funds don't own the assets, so it is not their decision to sell. The assets are owned by the underlying funds," said this source.

The preparation for the merger between Centro Properties and listed sister trust Centro Retail was progressing, but was a highly complex transaction, involving related parties. In a recent note, Rob Stanton, head of property research at JPMorgan, said a combined vehicle would have gross assets of $4.6bn, debt of $1.6bn and gearing of 38 per cent.

Mr Stanton estimated that regional centres would make up 38 per cent of the portfolio, with sub-regionals accounting for the balance.

He expected the merged entity to have market capitalisation of about $3bn, making it the ninth largest trust on the benchmark S&P/ASX A-REITs 200 Index. JPMorgan said the new trust could generate earnings of $200m-$210m a year.

Centro Mark II would also have potential earnings from development projects and fees from property management. Its syndicate business would have the remnants of $2.8bn of assets previously under management.

Mr Stanton said a Centro Mark II would offer an alternative to Westfield Retail Trust and CFS Retail Trust. In a recent address to the American Chamber of Commerce, Centro's chief executive Robert Tsenin said the Australian portfolio had an occupancy level of 99.5 per cent.

Mr Tsenin said these assets were forecast to deliver an increase in net operating income exceeding 4 per cent this year.

He said Centro is Australia's largest landlord to Coles and Woolworths. All its Australian assets were held in co-ownership vehicles with Centro's ownership stakes in these funds varying from small minority interests to over 50 per cent interest.