Centro sets recovery plan in train after costly merger

THE new management of Centro Retail Australia will undertake a thorough review of all operations and potential asset sales as it moves the embattled retail landlord into its recovery phase.

THE new management of Centro Retail Australia will undertake a thorough review of all operations and potential asset sales as it moves the embattled retail landlord into its recovery phase.

While the business in its new guise is only a month old, the group still reported profits for the half year from operations relating to the former Centro entities.

In the six months to December 31, underlying profit was $22 million. However, when merger costs were included the group reported a net loss of $100.1 million.

Centro was one of the first victims of the US subprime collapse in late 2007 and in February 2008 revealed it owed close to $5 billion in short-term debt that it could not pay.

After four years of refinancing deals to keep the business afloat, investors in the former Centro retail Trust, Centro Properties and the Centro syndicate business voted last year to merge the business instead of watching it sink into administration.

Centro Retail's new chief executive, Steven Sewell, said yesterday that thanks to the strong underlying business of malls that were food-anchored, [Coles and Woolworths] he was forecasting a 2012 financial year distribution of 6.4? per security.

In the six months, Centro's annual retail sales growth was up 1.6 per cent, with the comparable net operating income growth of 3.7 per cent, while the specialty rental rate growth on renewals was 5.3 per cent.

"We expect the retail environment to remain challenging but we will monitor tenant sales performance, mix and occupancy costs across portfolio to deliver [a] sustainable income stream," Mr Sewell said.

"The portfolio mix and locations are in good shape and we are confident there is latent demand for asset enhancement projects across the portfolio." Mr Sewell said there were early indications of about $400 million in potential developments over the next three to four years.

However, he declined to comment on the pending court case which starts on Monday.

Goldman Sachs analyst Peter Zuk said overall, the retail sales metrics were consistent with his expectations for the broader portfolio.