From the Herald:European retail group next to feel the sting of...

From the Herald:
European retail group next to feel the sting of global crunch

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* Jacob Saulwick and Jamie Freed
* February 29, 2008
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ANOTHER listed property trust has fallen victim to a spate of global asset write-downs - and debt covenant breaches - with investors carving 21 per cent off the price of APN/UKA European Retail Property Group (AEZ) units yesterday.

With $1.4 billion of retail properties under management across Europe, the group reported a $27.5 million loss on declining asset values, foreign exchange transactions and a provision for deferred tax liabilities. It had reported a $11.2 million profit during the same period a year earlier.

Fund managers expressed concern over the disappointing half-year results and sold down units in high volume trading.

AEZ units fell 15.5c to 57.5c, compared with 52-week highs of $1.40, after it admitted it breached a covenant on debt related to a shopping centre in Spain. The lender has waived the breach until May next year, subject to compliance with revised conditions.

AEZ, which is heavily exposed to the softening European property market, reduced the value of its portfolio by an average of 3.1 per cent and warned there may be more reductions. It said the impact of the subprime crisis in the United States had "heightened concern" for ensuring it maintained adequate financing facilities and its manager had reviewed arrangements across the group.

"Investors should be aware there does remain the risk that if property values are reduced beyond certain levels, it may become necessary to sell properties to repay debt," the group warned.

Most of its properties have individual loans, some of which could be threatened where loan-to-value covenants were close to their limits. In that case, the parent entity would be given an opportunity to rectify the situation by repaying the loan or providing guarantees. But AEZ said only $18 million remained undrawn in its credit facility, which expires in November.

Since January, AEZ has been marketing an unlisted retail fund to hold its Greek Champion supermarket portfolio, but so far it has raised only 50 per cent of the $56 million needed to set up the fund. AEZ will receive fees for providing asset and property services to the fund if its creation is successful.

The company hopes to launch further unlisted European property syndicates to grow its "alternative revenue base".