BELEAGUERED shopping centre giant Centro Properties Group is...

BELEAGUERED shopping centre giant Centro Properties Group is stepping up its rehabilitation efforts.
It is launching an ambitious sale process to find a partner to manage and jointly own a $1 billion property portfolio.

A "teaser" document sent to prospective buyers says Centro is looking for a partner to manage 50 shopping centres -- worth around $1bn -- owned by Centro syndicates, and also to buy part of Centro's equity interest in those syndicates.

The offering represents about half of the group's Australian property syndicate operation and is the latest concrete step that new chief Robert Tsenin is taking to bring down debt levels and move Centro back towards being an investment-grade company.

A full information memorandum from Centro banking advisers Moelis & Co and JPMorgan was expected shortly, industry sources said. Centro communications manager Andrew Scannell declined to comment.

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Analysts expect Centro's Australian and US shopping centres to be split under a wider restructuring currently being considered.

Through a group of highly leveraged and inter-linked trusts and businesses, Centro controls 718 shopping centres in Australia and the US with a combined value of $18bn, according to last year's accounts.

In the US, Centro's $US10bn ($11.5bn) of assets could be broken out and bundled for a trade sale or rolled into a new vehicle with internal management when markets recovered, analysts said.

The uncertainty surrounding litigation by the corporate watchdog, the Australian Securities & Investments Commission, and in two separate class actions is one of the big stumbling blocks to any restructuring plans.

The one broker that still covers Centro, JPMorgan, pointed out in a February research note that Mr Tsenin was "incentivised" to execute a restructure. Mr Tsenin, who started at the company in March and is yet to speak publicly in his new role, will earn a base salary of $1.2 million a year but will receive 25 per cent of a $5.5m cash long-term incentive when Centro's board accepts a restructuring plan. He is expected to update the market at its profit result in late August.

Centro's troubles hit in December 2007, when it was unable to refinance $3.9bn worth of debt in the deteriorating credit market. A rescue package finalised last year delivered 90 per cent of the company to Centro's lenders.

Centro's Australian property syndicates business has experienced more pain this year as retail investors desert the syndicates whose life terms will expire during the next 18 months.

In June, The Australian reported that Centro had approached fund manager Charter Hall about a joint venture or sale of the syndicates management business. Charter Hall has been in expansion mode, buying the management of two of Macquarie Group's listed property trusts.

Parties that may be interested in the syndicates or other parts of the Centro empire are Colonial First State, AMP and Challenger, which have retail distribution networks. Other possible contenders are Lend Lease and GPT. Mirvac has shown interest in the past.

A new syndicates management partner would provide the tarnished Centro with "respectability" and, hopefully, stem the flow of disgruntled unitholders, sources said.

Industry sources said that JPMorgan and Moelis & Co -- which Centro Properties appointed in December to advise on a restructure -- had also been appointed to sell the syndicates business.

Centro manages 35 syndicates with $3.2bn of assets in Australia and $US2.5bn in the US.

It bought the original syndicates business, MCS Property, from Julius Colman in 2003 for $193.5m.

UBS was also appointed in December, but to advise the listed satellite trust Centro Retail Trust.

This year Centro syndicates have either sold or are negotiating to sell more than $400m worth of centres.

Centro Surfers Paradise -- owned by Centro MCS 11 Syndicate -- has been under due diligence by Queensland billionaire John Van Lieshout for a price believed to be around $190m.


The Australian 26/07