CENTRO Retail Australia has moved back into contention as an investment-graded real estate investment trust with its inclusion in the top-100 index and a more balanced shareholder register.
After struggling to keep afloat over the past four years, the retail REIT now has less than 40 per cent of its register tied up with short-term, volatile hedge funds and a sector-standard gearing rate of about 26 per cent.
Its next hurdle is to improve its credit rating through the restructuring of debt from asset sales and cost controls. The more stable register also makes the group less of a takeover target as investors are now long-term institutional and superannuation funds.
Jason Weate, an analyst at Deutsche Bank, said Centro's gearing guidance of about 26 per cent positioned it well to access debt capital markets by around the end of this year and restructure its core lending facility of about $1.3 billion.
Armed with $690.4 million in cash from the sale of a half share in three assets to the Perth-based Perron Group, Centro can now also repay its $200 million liability from a long-running shareholder class action. Under that deal, Centro sold a 50 per cent interest in the shopping centres Galleria, Perth, The Glen shopping centre and its head office, Melbourne, and Colonnades, Adelaide.
Once debt is repaid and the asset sales are completed, Centro's management intends to look at expansion through acquisitions and new developments. In an investor update released yesterday, the group's chief executive, Steven Sewell, said Centro was to be included in the MSCI this week, which followed its re-entry to the S&P/ASX 100 Index, S&P/ASX 200 Index and S&P/ASX 200 REIT Index in March 2012.
He confirmed Centro was on target to distribute 6.4? per security for the year to June 30.
"The successful completion of the Perron transaction and resolution of the litigation will position Centro well to consider and pursue a number of significant value, earnings and return on equity enhancing opportunities, and progressing our redevelopment pipeline," Mr Sewell said.
"As Centro becomes an integral part of domestic and international REIT index portfolios, as a substantial internally managed ARET, with a key focus on ownership and management of Australian shopping centres, we have seen a continuing transition in our investor base to long-term REIT investors."