centro's $4bn shopping centre refit

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Centro's $4bn shopping centre refit Bridget Carter From: The Australian March 02, 2011 12:00AM

A NEW Australian shopping centre owner is expected to emerge from the ashes of Centro Properties Group after the company confirmed yesterday the $9.4 billion sale of its US portfolio to private-equity giant Blackstone and announced plans to combine its Australian centres worth $4bn.
As part of a proposal struck with bankers and hedge funds, Centro Properties Group (CNP) will swap 73 per cent of the senior debt on the headstock for all its ownership interests in Australian regional and subregional shopping centres.

About 40 properties linked to four Centro-related entities will be put into one listed company and geared at a conservative 35 per cent in line with its peers.

It is expected to be more than 50 per cent owned by the CNP lenders, who would likely sell out over time.

But, as part of the proposal, only $100 million will remain from the deal to be shared between CNP shareholders, its junior lenders, bondholders and claimants in two pending class actions.

The highly leveraged shopping centre owner that once had a market capitalisation worth more than $8bn was one of Australia's first corporate victims of the global financial crisis.

Its shares crashed through the floor from highs of $9 at the peak of the market in 2007 to less than $1 in December that year, when it announced it was unable to refinance $3.9bn worth of debt.

It has since been the centre of one of Australia's largest corporate restructures.

One analyst described what Centro was proposing as an "asset strip" and said the big losers of the deal were those that had bought into Centro Properties Group shares at the peak of the market, when they were $9, although much of the pain had already been felt.

Some analysts questioned why the shares did not fall further yesterday. One estimated that CNP unit holders were likely to end up with 1c for every share after the $100m was distributed.

Only retail investors remain as holders of the CNP stock.

Simon Garing of Merrill Lynch Equities said the deal was an excellent outcome for shareholders of the less highly geared satellite trust Centro Retail (CER), given the company announced yesterday that it would not be launching an equity raising for the new entity and therefore diluting value.

After coming off a trading halt yesterday, shares in Centro Properties Group closed down 2c to 13c and CER shares closed up 1c to 35.5c.

Centro's chairman Paul Cooper said yesterday that the class action that was related to the head stock would proceed "on foot" and he did not think plaintiffs would be disadvantaged should the proposal proceed.

He indicated chief executive Robert Tsenin would stay until the restructured entity had been bedded down.

Mr Tsenin would not rule out a sale of Australian assets from the new company, saying all options were being evaluated, including the future redevelopment of the properties.

He said the potential upside was far greater than on its US portfolio.