Centro shopping centres catch US browser's eye

STRICKEN shopping centre empire Centro can count US private equity outfit Blackstone Group among its suitors, The Wall Street Journal reports.

By InvestSMART · 30 Dec 2010

By InvestSMART ·
30 Dec 2010

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STRICKEN shopping centre empire Centro can count US private equity outfit Blackstone Group among its suitors, The Wall Street Journal reports.

Blackstone, one of the world's biggest private equity players, is primarily interested in Centro's 600 US shopping centres, valued at about $9.5 billion, The Journal says.

A Centro spokeswoman refused to comment on the report. But last week the company told the stock exchange it had "received several expressions of interest in both Australia and the US", but said evaluating the bids would be complex and might not result in a sale.

Blackstone joins other bidders reported to be interested in buying all or part of the shopping centre group's assets, including Lend Lease reported to be bidding more than $16 billion for the whole of Centro Colonial, Stockland and AMP Capital.

It had made an indicative bid for the US assets by the deadline of December 17 set by Centro, The Wall Street Journal reported.

Blackstone's website boasts that its private equity business is "one of the world's largest and most highly respected", with $US24.3 billion invested. All up, the group is reported to have about $US100 billion in funds under management.

Up for grabs in the Centro bidding war is an empire of 712 shopping centres in the US, Australia and New Zealand, accumulated during a boom-time buying spree under former chief executive Andrew Scott.

Centro's near-collapse in late 2007 and early 2008, after it failed to roll over $3.4 billion in debt, was a harbinger of the financial crisis that froze credit markets around the world. But the passing of the crisis has not removed its problems, and it is under intense pressure from its financiers to sell assets.

The company has been largely owned by its bankers since ordinary shareholders were all but wiped out in a debt-for-equity swap early last year. It has about $11.5 billion in debt that must be refinanced by the end of next year.

Last month, chief executive Robert Tsenin told shareholders at Centro's annual meeting that while its property portfolio was worth $18.6 billion, it carried $18.4 billion of debt. At its peak, the company valued its property portfolio at about $27 billion.

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Frequently Asked Questions about this Article…

What recent takeover interest is there in Centro shopping centres?

Reports say several bidders have expressed interest in buying all or part of Centro’s shopping centre empire. US private equity giant Blackstone is said to be interested in Centro’s roughly 600 US shopping centres (reported value about US$9.5 billion), while other suitors reported include Lend Lease, Colonial, Stockland and AMP Capital.

Has Blackstone made a formal bid to buy Centro's shopping centres?

According to The Wall Street Journal, Blackstone made an indicative bid for the US assets by the December 17 deadline, but Centro has not confirmed a sale. A Centro spokeswoman declined to comment publicly, and the company has said it received several expressions of interest but that evaluating bids is complex and might not lead to a sale.

Which Centro assets are reportedly up for sale and how big is the portfolio?

The assets reported to be for grabs include an empire of 712 shopping centres across the US, Australia and New Zealand, with roughly 600 centres located in the US that private buyers have shown particular interest in.

How much debt does Centro have and why is that important for investors?

Centro carries substantial debt — the article states about $11.5 billion that must be refinanced by the end of next year. CEO Robert Tsenin also said the property portfolio was worth $18.6 billion while debt was $18.4 billion. High leverage and looming refinancing deadlines increase pressure on the company to sell assets and are key risks everyday investors should monitor.

What bids have been reported for Centro and what size are they?

Media reports say Lend Lease has been reported to be bidding more than $16 billion for the whole of Centro. Blackstone reportedly focused on the US assets (about US$9.5 billion), and other potential bidders mentioned include Colonial, Stockland and AMP Capital.

How did past financial problems affect Centro shareholders?

Centro nearly collapsed in late 2007 and early 2008 after failing to roll over $3.4 billion in debt. Following restructuring early last year, ordinary shareholders were largely wiped out in a debt-for-equity swap, and the company is now largely owned by its bankers.

What was Centro’s portfolio value at its peak compared with now?

At its peak the company valued its property portfolio at about $27 billion. The article notes the current portfolio value was reported at $18.6 billion, indicating a significant decline from peak valuations.

What should everyday investors watch for next in the Centro takeover story?

Investors should watch for official announcements from Centro about any sale process or definitive bids, updates on the expressions of interest, and progress on refinancing the roughly $11.5 billion of debt due by the end of next year. Those developments will affect ownership, balance-sheet strength and potential outcomes for existing shareholders.