defabs-your feelings moving forward, page-20

Hi all,

From the ann:

"CER?s net proceeds of sale are approximately US$500 million, including US$38 million recovery from its investment in Super LLC"

Yes this is extremely disappointing. All we got was US$38m for an asset that was worth over US$500m for CER and generating up to US$100m underlying profit per year. I cant believe that a debt for equity couldn?t be arranged with CNP?s SuperLLC debt holders which would have allowed CER to realise its 25c equity. If I were Tsenin, I would have made CNP?s SuperLLC debt holders take a debt for equity and suffer a $1b haircut (This is CNP?s negative equity in Super) rather than the debt for equity be done on the Aust assets and have the debt holders take a $1.4b haircut.

It would have been in our best interests for all US assets to get sold and have SuperLLC recapitalised. The action taken by the CER board was the soft option. We were under no pressure to dispose of SuperLLC. How the hell could it have been in our best interests to dispose it for $38m or under 2c per share? The LVR of Super was only 104% at Dec 2010 so impairment writebacks were imminent. I would have rather let SuperLLC ride and return 0c, then make a careless and rash decision and realise only $38m. A very very poor management decision. Anyhow we need to forget about this and move on. No point thinking about class actions and what could have been. Lets be grateful we don?t hold CNP..


"Proceeds intended to retire recourse Australian debt resulting in CER?s gearing reducing from 75% to approximately 43%"

I think in my previous post I mentioned some debt facilities that could be paid off as a result of the receipt of $500m. Yes the $500m will be used to retire debt prior to any amalgamation with Centro?s managed funds but I note that the above point mentions ?recourse? debt. This is debt that is not directly secured against any particular properties. Ie CMBS debt would not be included in this example.

Paying off the recourse debt would protect CER as an entity in the event of any debt unable to be paid off. Non recourse debt holders can only force CER to sell the assets that were used as security against the debt. Any shortfall to CMBS/non recourse debt holders after the sale of assets means no further action can be taken.
I believe the debt facility that would be most likely paid down first is the ?CER ? Cash Advance Facility maturing 15-Dec-2011, $336.6M at 7%?



So as discussed on here by a few others, it looks like CNP will no longer have a 51% direct/indirect in CER anymore. This will be owned by CNP?s debt holders. Many of the Aust properties we share with CNP would be co-owned with these new owners.

With regards to the amalgamation with the managed funds, I am not sure how this will impact CER at this stage. I cant see NTA being affected if it were to proceed.

Also I am not sure if CER or a new subsidiary of CER will gain RE status of the Australian portfolio. I am assuming this will come to us somehow. This would be quite significant as presently the gap between NOI and ABR on the Aust portfolio as at Dec 2010 was $22m according to page 1 of the Australian property supplemental. ABR for CER was $142M and NOI for HY was $60M (Annualised $120M). This means that $22M is paid to the RE on annual basis by CER. CNP wont be milking CER anymore so that has to be a good thing!

Even if NOI can increase by 5% as a result of management cost reductions, the value of properties for CER would increase by 5%.

It should also be noted that as going concern risk is a non-issue due to the gearing reduction, cap rates should come in. It was highlighted by Rob in the HY presentation call that CER?s peers had lower cap rates because of their lower gearing. Even if cap rates were not to be squeezed during this HY, the value of CER?s Aust properties should increase at a minimum of 2% (4% NOI growth divided by 2). This would increase NTA by approx 1.5c.

What am I not sure about is, the CNP ann said the only asset for CNP security holders is $100m. If this is the case, what happens to the $110m loan payable from CER to CNP?

All in all, I am content that CER is moving into the next stage of its life. Yes the infinite upside has been capped with the removal of Super but strong NOI growth, 100% occupancy, favourable future cap rates, moderate gearing and a non-discretionary retail portfolio should see CER with a very steady but strong future. Oh and a distribution policy sometime in the near future shouldn?t hurt the unit price also :-)

Onward and Upwards

Cheers!