hedging taken out against us$500m?, page-7

Gday JP26,

Its a great point you raise.

Im not the greatest expert on CNP but most of its revenue was derived from management fees from syndicates it created where it had a controlling interest from.

The following extract from the FY07 CNP annual report explains why its managemet services business was valued so highly:


"During FY07, gross funds management income increased by 78.3%. Monthly funds management income represents growth in stable and secure trust management fees and amortisation of fund establishment fees. Other recurring funds management income represents fees from establishment of new funds facilitated by Centro?s strong FUM growth and outperformance of Centro?s managed funds delivering significant performance fees.
The establishment of new funds during FY07 including CAWF, CAF, Centro MCS Syndicates 38, 39 and 40 as well as the acquisition of the management of CSF, all contributed to the strong growth in funds management income. Continuing growth in Centro?s direct property funds through their significant new investments has also increased funds management income."


All the US syndicates are no longer relevant such as CMCS32, 38, 39, 40 and CSF.

I know I recently mentioned that CER may become the new RE of the new established Centro entity but I dont think there will be an RE as such. All the syndicates will be merged into the one entity so I think the synergies will be created through the savings of management fees that each used to pay Centro MCS/CNP.

The following are some fees that CER needs to pay to the Responsible Entity (RE) according to its agreements with Centro MCS/CNP, which may not be relevant in the not too distant future...

http://www.asx.com.au/asxpdf/20070914/pdf/314k817b17t3pp.pdf

Pg 31 says management fees total 0.69% of CER's net assets to the responsible entity

Management Costs
The fees and costs for managing your
investment.
Estimated at 0.69% per annum(1) of New
CER?s net assets. The Responsible Entity
may also be entitled to the Performance
Fee.
Calculated and paid monthly to Centro
MCS Manager from the income and
assets of New CER.



There are a whole list of other fees and charges on page 34 of the above link that CER needs to compensate the RE for. The removal of the two major ones I have listed below should materially affect our NOI favourably going forward:


?Property Management Fee Up to 6% of gross rental income. Calculated and paid monthly in arrears to Centro from the income and assets of CER?s Australasian properties.?

?Up to 10% of the first year?s gross rental income from initial leases for newly developed tenancies. Calculated and paid periodically in arrears to Centro from the income and assets of CER?s Australasian properties where project leasing services are provided for any properties under development.?



A significant saving in this regard will not improve underlying profit of CER but as the NOI will be higher due to lower costs associated with managing the properties, the value of the properties should increase.

So having said this, although the management business is not worth $5.5b now due to the loss of the US properties, some of this wealth will be transferred to CER through cost savings and higher property values.

I think Im on the right track!

Opinions please?

Cheers