Centro keeps $1bn debt secret

CENTRO’S property group has admitted it failed to properly disclose more than $1 billion of debt in the months leading up to its $5 billion implosion this week.

Responding to a query from the Australian Securities Exchange, Centro (cnp.ASX:Quote,News) last night admitted it had “incorrectly” classified $1.097 billion of debt as “non-current” in its June 30 full-year accounts and the misstatement had been identified by its auditors.

Centro’s high level of debt caused its $5 billion meltdown this week, and its failure to properly disclose the $1.097 billion may cause it to face legal action from the corporate regulator.

Centro (cnp.ASX:Quote,News) could also be sued by investors who bought stock in the company between the August 9 release of Centro’s full-year accounts and September 6 when “the correct classification was available to the market”.

The revelations come as it emerges that Centro chief executive Andrew Scott could walk away with a $7 million “golden handcuff” payout despite having taken the company to the brink of collapse.

Under generous management arrangements, Mr Scott and other key Centro executives’ contracts include termination clauses which in total could see Centro shareholders face a bill of well over $18 million if those executives lose their jobs for anything other than “gross misconduct”.

The global credit crisis was sparked in late July by the sub-prime fallout in the US. Centro first disclosed debt funding problems to the market on Thursday last week when it placed itself in a trading halt.

On Monday, Centro announced it had been unable to refinance $3.9 billion worth of debt, and its shares plummeted from $5.70 to close at $1.32 yesterday.

The company was queried by the ASX about when it first became aware it would have “material difficulties” in refinancing its debt obligations.

Centro said it had “discussed alternative refinancing structures through the commercial bank market” between “October and early December” but the group believed until “late last week” that it would be able to refinance that debt.

“Throughout these discussions (with the commercial banks) Centro was confident that it could enter into long-term funding commitments for the maturing debt,” Centro told the ASX.

Centro’s annual report says that under most circumstances, if Mr Scott loses his job he will be paid out two times his total annual remuneration.

He earned a base salary of $1.23 million last financial year, but with incentives the package totalled $3.59 million.

Angry institutional shareholders are believed to have discussed applying further pressure to have Mr Scott and senior management dismissed.

Shareholders are expected to call for Mr Scott’s head after February 15 – the date when Centro has to refinance critical short-term debt. However, that move could be delayed until the end of the financial year to allow for the sell-off of parts of its 700-centre, $26.6 billion US and Australian shopping centre portfolio, an institutional shareholder told The Australian.

Centro is believed to have opened a due diligence room to allow likely predators to investigate buying its $2.6 billion Australian wholesale shopping centre fund.

One shareholder said yesterday that if the Australian Securities and Investments Commission launched a successful action against Centro management, then shareholders might not face golden handcuff payouts if management were sacked.

Plaintiff law firms Maurice Blackburn Cashman and Slater & Gordon said this week that they were in talks with institutional shareholders to see if litigation over lack of disclosure was viable.

Source : news.com.au

Update on debt position & Centro exposure


Debt position

In light of recent events in the listed property trust market, the responsible entity wishes to advise investors and the market of the current debt and interest rate hedging arrangements for the Fund.

Lender: OCBC
Amount of Facility: $68 million
Amount Drawn Down: $68 million
Facility Expiry: 14 May 2008
Current Loan-to-Value Ratio: 26%
Floating Interest Margin: BBSY plus 0.90%
Interest Rate Hedging: $40 million Fixed until 29 December 2010
$28 million Variable

Based on 30 November 2007 valuations.

The responsible entity is comfortable with the Fund’s current debt & hedging position and the forecast distribution of 2.625 cents per unit for the December quarter and 10.5 cents per unit for the 2008 Financial Year.

Centro exposure

MPS invests in a broad range of unlisted and listed real estate funds with investments currently in 51 different funds managed by 30 different property investment managers.

As at the date of this announcement, MPS has the following investments in Centro managed entities:

Name of Fund / Listed or Unlisted Investment / Amount $ / Latest advised value $ / % of MPS
Centro Retail Trust / Listed / 3,051,199 / 1,538,484 / 1.08
Centro MCS 32- International No. 2 / Unlisted / 1,000,000 / 1,320,000 / 0.55
Centro MCS 33 / Unlisted / 1,500,000 / 1,845,000 / 0.77
Centro MCS 33- International No. 3 / Unlisted / 1,262,500 / 1,489,750 / 0.62
Centro MCS 35 Unsecured Notes / Unlisted / 1,237,500 / 1,460,250 / 0.61
Centro MCS 36- International No. 4 / Unlisted / 2,272,000 / 2,272,000 / 0.95
Centro MCS 36 Unsecured Notes / Unlisted / 1,278,000 / 1,278,000 / 0.54

The total exposure to Centro is $1,538,484 or 1.08% to the listed Centro Retail Trust and $9,665,000 or 4.04% to a range of Centro managed unlisted property trusts. Centro has advised that the December quarter distributions of the unlisted Centro MCS Funds will not be impacted by the debt refinancing issues being faced by Centro Retail and Centro Property Group.

Source : SGX

Distribution to SGX listed unitholders

On 18 September 2007 the Directors of MacarthurCook Fund Management Limited, the Responsible Entity for the MacarthurCook Property Securities Fund, announced the
distribution for the quarter ended 30 September 2007 of 2.625 Australian cents per unit.

For Unitholders on the Singapore register, this gross distribution amount is subject to Australian withholding tax of 30% on the forecast taxable distribution component. This component is estimated to be 40% of the total distribution. Accordingly, 0.315 Australian cents per unit will be withheld from the distribution and remitted to the Australian Taxation Office.

The net distribution to SGX listed unitholders of 2.31 Australian cents per unit will now be paid on 30 October 2007 at an exchange rate of 1.3144 SGD per AUD.

Source : SGX

MacarthurCook Property Securities Fund
Sept 14 close: A$1.07
Macquarie Research, Sept 13

RIGHTS issue to fund future growth: MPS has announced a one-for-three renounceable rights issue to existing unitholders. Full take-up from unitholders would result in the issue of a further 48.7 million units, equivalent to around A$51.1 million (S$65 million).

Impact: The rights issue applies to MPS units listed on both the ASX and SGX. The Australian issue price of A$1.05 represents a 4.2 per cent discount to 10-day VWAP prior to announcement, while the S$1.32 Singapore issue price represents a 1.5 per cent discount. New units will rank equally with existing units from the allotment date, expected Oct 19, and will be entitled to the December quarter distribution.

MacarthurCook in its own capacity will underwrite up to 4.8 million units of any shortfall at A$1.05 per unit. This represents just under 10 per cent of the full rights issue, or a A$5 million minimum raising.

Issue proceeds will initially be used to pay down existing debt. Repayment of a portion of MPS’ now fully drawn A$68 million cash advance facility with OCBC will enable the fund to invest in further opportunities as they arise.

We flagged the potential for MPS to raise further capital after its FY07 result, in light of management’s indication that it saw opportunities presenting themselves amidst current market volatility.

The impact on our forecasts is subject to numerous variables, including proportionate take-up by unitholders, the prevailing SGD/AUD exchange rate, timing of investment in new opportunities, as well as distribution yields and placement fees earned on new investments. If MPS is able to reinvest relatively quickly in investments generating yields of at least 9.5 per cent (around MPS’ distribution yield), this would have a neutral impact on EPS. But as a bear case scenario, if 50 per cent of the rights issue were taken up and only used to pay down debt, the impact would be a 4.1 per cent dilution in FY08 EPS.

Earnings revision: No change to earnings – subject to rights issue acceptance levels.

12-month price target: A$1.15 based on a DCF methodology.

Catalyst: Reinvestment into new funds at high yields and negotiated placement fees.

Action and recommendation: MPS’ high 9.5 per cent yield and high tax deferred combination remains an attractive combination for investors. Given the potential dilution of the rights issue, we have revised our recommendation to ‘neutral’ until evidence of successful reinvestment becomes apparent.

NEUTRAL

MacarthurCook Property Securities Fund Renounceable Rights Issue

The Directors of MacarthurCook Fund Management Limited (the “responsible entity”) are pleased to announce a 1 for 3 Renounceable Rights Issue (the “Rights Issue”) for holders of units in the MacarthurCook Property Securities Fund (the “Fund”).

The Issue price for new units issued under the Rights Issue will be A$1.05 (S$1.32, calculated using the Australian-Singapore exchange rate of as at 1.2610, which was the exchange rate as at 7 September 2007).

The Rights Issue will be available to unitholders who are resident of Australia, New Zealand, or Singapore as at the Record Date.

The Rights Issue seeks to raise up to A$51.08 million before expenses. Proceeds from the raising will be used to repay debt. However, the Fund will redraw debt in order to take advantage of attractive investment opportunities as they arise.

MacarthurCook Fund Management Limited (in its personal capacity) will underwrite any shortfall in the subscription for New Units under the Rights Issue at the Australian Issue Price of A$1.05, up to a maximum subscription of 4,761,905 New Units, for an underwriting fee of $50,000 (plus any applicable GST). Therefore, the minimum subscription amount under the Rights Issue will be A$5 million (subject to the terms of the underwriting agreement).

The Rights Issue will enable investors in the Fund to increase their unitholding at a potential discount to the prevailing market price of the Fund’s units, without incurring transaction charges such as brokerage. New units issued under the Rights Issue will rank the same as ordinary units of the Fund. New units will not be entitled to the distribution for the period ending 30 September 2007, as they will be issued after the record date for that distribution, but will be entitled to the distribution for the period ending 31 December 2007 and to all distributions after that date.

Based on the increased forecast distribution for the 2008 financial year of 10.5 Australian cents per existing unit and the Rights Issue unit price of A$1.05, an Australian unitholder that is issued a new unit under the Rights Issue is expected to receive distributions totalling 7.875 Australian cents on the new units for the remainder of the 2008 financial year. This represents a forecast annualised income return of 10.38% pa per new unit for Australian investors (assuming distribution reinvestment).

A Singapore unitholder that is issued a new unit issued under the Rights Issue is expected to receive distributions totalling 8.74 Singapore cents on the new units for the remainder of the 2008 financial year (based on a S$/A$ exchange rate of 1.2610, assuming a 60% tax deferred status and after applying 30% withholding tax). This represents a forecast annualised income return of 8.80% pa per new unit for Singapore investors (with no distribution reinvestment assumed).

A Rights Issue document and personalised application form for the Rights Issue will be despatched to unitholders on or about 25 September 2007. The offer period will close on 12 October 2007. Subject to the terms of the Rights Issue, all Australian, New Zealand and Singaporean unitholders who are registered at 7.00pm on 20 September 2007 (the “Record Date”) will be sent the information brochure and are eligible to participate in the Rights Issue.

Full details of the unitholders entitled to participate are set out in the Rights Issue document. The material terms of the underwriting agreement are also set out in the Rights Issue document.

Participating unitholders will also be entitled to trade their rights on the ASX on and from Friday, 14 September 2007 and on the SGX on and from Tuesday, 25 September 2007.

Applications must be made on the application form accompanying the Rights Issue document. Full details of terms and conditions of the Rights Issue are contained in the Rights Issue document which will be forwarded to all unitholders shortly.

2007 Financial Result Highlights

In a separate announcement made to the ASX and SGX on 31 August 2007, the 2007 financial year results were released.

The Fund has posted a net profit for the year of A$34.3 million – an increase of approximately 136% over the previous 12 month period. For the 2007 financial year earnings were A25.6 cents per unit compared with A13.4 cents per unit in the previous year, on a weighted per unit basis.

It was also announced on 26 June 2007 that ordinary distributions to unitholders (before any withholding tax) for the 2008 year are forecast to increase to A10.5 cents per unit.

2007 Results Highlights:

• Total Return of approximately 19% to Australian Investors for the year to 30 June 2007.

• Total Return of approximately 14% to Singapore Investors since listing 22 December 2006.

• Total Net Profit for the period to 30 June 2007 increased by approximately 136% when compared to the previous year.

• Earnings per unit (weighted basis) exceeded distributions made to unitholders by approximately 169%, or 16.1 Australian cents per unit.

• Net Tangible Asset backing has grown by approximately 13% from A$0.98 at 30 June 2006 to A$1.11 per unit as at 30 June 2007.

• Market Capitalisation has increased approximately 29% from A$122 million on 30 June 2006 to A$158 million at 30 June 2007.

• Closing Unit Price on the ASX increased 10% for the year to 30 June 2007.

• Closing Unit Price on the SGX increased 9.6% since listing 22 December 2006 to 30 June 2007.

• Distributions per unit for the 2007 financial year for Australian investors were on a par with the forecast at 9.5 Australian cents.

• Distributions per unit for the 2008 financial year for Australian investors are forecast to increase to 10.5 Australian cents, or for Singapore investors this equates to approximately 11.65 Singapore cents, assuming an A$/S$ exchange rate of 1.2610, a tax deferred status of 60% and after 30% withholding tax.

The results for this period are a result of the successful investment strategy employed by the Fund. With the Fund’s secondary listing on the Singapore Stock Exchange, the Fund was able to expand its portfolio. The results for the financial year show a significant increase in earnings per unit and we are also pleased to see the growth in value of the Fund’s investments.

Source : SGX