If life for the losing shareholders in Centro Properties Group and associated Centro Retail Trust was not miserable enough, the huge Westfield property empire has added to that by ruling itself out of any rescue or asset deal.
Speaking on the ABC program, Inside Business yesterday, Westfield co-managing director, Steven Lowy said Westfield was not interested in the assets of Centro Properties, which made a $1 billion-plus loss in the first half of the financial year.
"That’s not on our radar screen," he said.
"The types of assets that they have, plus the business model that business employs, is hugely different for our business. We are totally focused on the best quality regional shopping centers in very strong markets.
"The profile of the vast majority of the assets in Centro are very different to that."
In fact Centro owns half a former Westfield shopping centre at Tuggeranong in Canberra and it would be odd if Centro thought it could sell it back to its previous owner.
Westfield reported a 11.6% rise in operating earnings and said it expects to deliver similar growth in 2008. It was a profit, which excludes property revaluations, of $1.79 billion for calendar 2007.
In contrast Centro Properties reported a total loss for the first half of 2008 of $1.1 billion, and more to come in the second half.
The foray into the US shopping mall market has cost the group at least $850 million after it revealed massive write-downs of its portfolio on Friday.
The new chief executive, Glenn Refrano, who has been in charge since January, revealed that Centro had taken two separate bottom-line hits to cover the impact of its badly-timed international expansion.
There was a $578 million write-down in goodwill at its US business New Plan Excel Realty Trust, which operates more than 700 shopping malls, and an additional write-down of $278 million covering its directly owned North American investments. They were mostly acquired a year ago by the former CEO, Andrew Scott who is at Centro until the end of this month as a ‘consultant’ involved in trying to sort out the mess he helped create.
The goodwill covers some of the excess paid for the US business over the value of the actual assets bought.
That deal in 2007 involved a debt financed $6 billion expansion into the US market just as retail sales started spluttering and the subprime mortgage crisis was emerging.
Centro’s securities fell 12.5 cents to 45 cents on Friday
The loss will accelerate the break-up of Centro as its lenders demand decisions on selling key assets before an April 30 deadline to settle its outstanding debts.
The US operation is likely to be the first to go, under a plan of asset sales and an attempted cash and equity injection into the parent group to try and keep the group on track.
Mr Refrano is the former head of the New Plan Trust, so at least he has a good idea of the problems and any strengths in his former business.
Centro has to repay its Australian lenders and US noteholders by April 30 to avoid a cross-default on $1.3 billion of debt owned to the American banks and due on September 30.
Mr Rufrano was optimistic on Friday: "Centro has terrific real estate in Australasia and the US as well as sound operating platforms led by capable staff throughout," he said. "The current issue facing the company is one of capitalisation."
The group has opened its books to potential bidders who have expressed interest in buying Centro’s stakes in its two unlisted wholesale funds which own a majority of its shopping centres.
That is if it is not taken over. There are claims that Mirvac, the US private equity group Blackstone, GE Capital and Malaysia’s Mulpha are taking a serious look at making a full offer. In the current climate in financial markets the buyer would have to find a lot of cash from their own resources.
Analysts wonder if there’s enough time in the US business before it implodes. They noted that while the Australian shopping centres had occupancy levels of about 98% (in keeping with the solid retail environment), the US centres had occupancy levels around 92% and falling because of the weakening economy.
There’s a point where people won’t go to a shopping centre where there are a lot of empty shops, so the drop in traffic and occupancy start feeding off each other.
Centro’s distributable income for the half was 22 cents a security, up from 19.86c a year ago, but the company won’t pay an interim distribution, as previously advised. It said that "Until the outcome of the recapitalisation process is known, Centro has suspended guidance on its forecast operating distributable income."
Centro Properties’ result came a day after Centro Retail Trust reported a $260.8 million first-half loss.
Centro Retail has 80% of its 450 assets located in the US. There’s more pain ahead.
In contrast to the gloom from Centro, it was an upbeat story from Harvey Norman on Friday, but despite the good result, its shares fell 8%..
The company recorded a 31% increase in earnings to $174 million, on record sales up 12.4% to more than $3 billion for the six months to December 30.
Like for like or comparable (or same store) sales rose 6.9% in the six months to December.
But Harvey Norman also released sales figures for the seven months to January which seemed to show a slight easing in growth.
"Sales for the seven months to 31 January 2008 increased by 11.6% compared to the seven months ended 31 January 2007, and like for like sales increased by 6.3%."
That played a part in the adverse reaction on Friday as the the shares fell 39c to $4.55 on fears its profits were not sustainable during an economic downturn, and in the face of higher interest rates from tomorrow’s Reserve Bank board meeting.
It was a simi
