breakfast deals: centro reno

An article posted in the Business Spectator this morning.


BREAKFAST DEALS: Centro reno

Supratim Adhikari

Published 7:32 AM, 1 Mar 2011


Centro Properties looks set to unload its US assets to private equity heavyweight Blackstone Group for $9.2 billion and attention will swiftly turn to whether a merger of Centro Properties and its satellite Centro Retail might now be on the cards. Meanwhile, Clive Palmer stays mum on the impending float of his mining company Resourcehouse but the evidence is stacking up against him, and there?s a new copper battle in sight with dual listed Equinox Minerals lobbing a $4.8 billion bid to spoil the $9 billion tie-up between Canada?s Lundin and Inmet. Elsewhere, the ASX suffers an embarrassing glitch but it should be business as usual this morning, and is NAB getting ready to beef up its UK presence?

Centro Properties, Centro Retail, Blackstone Group

Centro Properties Group (Centro Properties) has taken a giant stride in getting back to sound health, with the $9.2 billion sale of its US portfolio of 588 malls. Centro is reportedly set to announce the sale of the assets to US private equity giant Blackstone Group, which has beaten a consortium of Morgan Stanley real estate fund, Starwood Capital Group and Paulson & Co; and a group led by NRDC Equity Partners and AREA Property Partners. That leaves Centro with its local portfolio of 112 or so shopping centres and a good chance of staying afloat as a stand-alone company. The $9.2 billion price tag will not only cover the $8 billion of debt on Centro?s US portfolio but also help it pare down the debt on the local operations. It?s that extra $1.2 billion that paves the way for the recapitalisation of the remaining business. While most of the proceeds are expected to go to Centro Properties, the transaction should help Centro Retail wipe off its $500 million exposure to the US markets. That?s just the tonic needed for investors to start putting some money into Centro Retail and The Australian Financial Review reports that overtures have already been made to large institutional investors to get them interested in buying a piece of Centro Retail. Centro boss Robert Tsenin can now direct his energies to work out which direction the restructure of Centro will take. One option is to merge Centro with Centro Retail, while the other would involve wrapping up all the assets under one Centro Properties banner if lenders agree to a debt-for-equity swap. The Australian reports that hedge funds have been piling into Centro Retail?s debt in recent months, which could be an indication of what might be preferred route to giving Centro its new lease of life.

A windfall for hedge funds

Blackstone?s cash splash is a clear indication that the private equity firm is confident that the US property market is on the mend. There is certainly a rebound but the recovery has been a bit uneven and Centro?s strip malls aren?t exactly the cream of the crop. However, some analysts have pointed out that they do provide Blackstone with the opportunity to get some meaningful returns as it revamps the malls bought from Centro. Whatever Blackstone wants to do with them it?s certainly not Centro?s problems nor the hedge funds that bought Centro?s debt on the cheap from the banks. The Blackstone deal values Centro?s debt at around 78 cents so the hedge funds that bough the debt for as low as 45 cents would certainly have a smile on their face.