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."
Frequently Asked Questions about this Article…
Why is Centro Retail Australia now being talked about as an investment-grade retail REIT?
Centro has regained investor confidence after re-entering major indexes (S&P/ASX 100, 200 and 200 REIT) and being included in MSCI. It now has a more balanced shareholder register with less than 40% held by short-term hedge funds, a sector-standard gearing rate of about 26%, and cash from recent asset sales—all factors that improve its investment-grade prospects.
How does Centro's gearing of around 26% affect its ability to access debt markets?
Analyst Jason Weate at Deutsche Bank said Centro's gearing guidance of about 26% positions the group well to access debt capital markets by around the end of the year and to restructure its core lending facility of roughly $1.3 billion.
What assets did Centro sell to the Perron Group and how much cash did that raise?
Centro sold a 50% interest in three assets (including the Galleria in Perth, The Glen shopping centre and its head office in Melbourne, and Colonnades in Adelaide) to the Perth-based Perron Group, raising $690.4 million in cash.
What will Centro use the $690.4 million from the Perron transaction for?
The cash enables Centro to repay a $200 million liability arising from a long-running shareholder class action and to fund debt restructuring. Management has said that once debt is repaid and asset sales are completed it will consider acquisitions and new developments.
What does Centro’s inclusion in MSCI and S&P/ASX indexes mean for everyday investors?
Index inclusion typically increases a company's visibility and can attract long-term institutional and superannuation investors. For Centro, this transition in its investor base reduces takeover risk and supports its positioning as an integral part of domestic and international REIT portfolios.
What distribution is Centro targeting for the financial year to June 30?
In an investor update, Centro’s chief executive Steven Sewell confirmed the group was on target to distribute 6.4 per security for the year to June 30.
How will resolving the shareholder class action affect Centro’s financial position?
Resolving the class action and repaying the $200 million liability will strengthen Centro’s balance sheet, improve its credit profile and free up capital to pursue value-enhancing opportunities and progress its redevelopment pipeline.
What are Centro’s next strategic steps after completing the asset sales and debt repayments?
Management intends to pursue debt restructuring and cost controls to lift its credit rating, and then look at growth via acquisitions, new developments and redevelopment projects to enhance earnings and return on equity.
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