Struggling shopping center operator Centro Properties Group, one of the most high-profile victims of the credit crunch, remains afloat as its creditors this week extended the Melbourne-based listed property trust a lifeline by giving the firm a six-month extension to pay down $2.5 billion in debt. It now has until December 15 to come up with the funds.
On Monday, Centro announced it had finalized a $95 million liquidity facility, what it described as “certain inter creditor arrangements between its financiers.” Centro, which ran into major financial trouble last year because of the huge amount of debt it took on to fund its $6.2 billion acquisition of New York-based REIT New Plan, owes its Australian lending group approximately $2.1 billion and its U.S.-based creditors $450 million.
The extension comes amid speculation that Centro which controls properties containing 106.5 million square feet of space in the U.S. and 22.6 million square feet internationally, is close to selling part of its U.S.-based portfolio to an anonymous buyer, improving the firm’s chances of surviving its current crisis.
“They are trying hard and the banks seem to be playing ball, so I hope that they are going to make it happen,” says Merrie Frankel, vice president and senior credit officer with Moody’s Investors Service, a New York-based credit rating agency.
Centro’s domestic lenders include the National Australia Bank, the Commonwealth Bank of Australia and Australia & New Zealand Banking. Its bankers in the U.S. are J.P. Morgan Chase and the Bank of America.
To maintain the extension, Centro will have to meet three additional conditions by Sept. 30, including satisfying its lenders that it is executing a viable strategic plan, getting the U.S.-based lenders on the New Plan merger, owed $1.1 billion in September, to sign off on the extension and having all of its lenders agree to the terms of any asset sale.
The extension doesn't mean Centro is on terra firma, according to Macquarie Research Equities analyst Callum Bramah. “Given the massive refinancing currently under extension and the variable interest rate exposure, Centro’s cost of debt and therefore interest expense is at risk of blowing out,” he wrote on May 9.
Centro did not respond to requests for comment.
The developments come as Centro is said to be close to selling part of its U.S.-based portfolio to an un-named buyer. REIT Zone Publications editor, Barry Vinocur, says DRA Advisors LLC, a New York-based registered investment advisor was among the bidders, but the portfolio will likely go to another entity.
A week ago, Bloomberg reported the firm was in negotiations to sell 95 percent, or $1.16 billion worth of assets, from its Centro America Fund, which contains properties acquired through its $3.2 billion purchase of Boston-based REIT Heritage Property Trust in June 2006. At the time, the Heritage's U.S. portfolio included 157 grocery-anchored centers totaling 28.7 million square feet, primarily in the Northeast and Midwest. While Heritage properties were considered second-tier when Centro bought them, they are well regarded among U.S. investors and still attract a lot of interest, according to Frankel.
“There are always people looking to buy good product; maybe they will renovate and reposition those properties,” she says. “The Heritage assets are in the Northeast and you may have somebody who wants more properties [there]. I am sure that everybody is taking a look. Whether they put in a bid is another story.”
While Centro works to resolve its financial problems, it also has to deal with a number of legal issues. On May 27, it was slammed with a second class-action lawsuit from its shareholders—one that extends over a longer time period than a lawsuit filed earlier last month. The lawsuit, backed by U.S.-based funding equity Commonwealth Legal Funding, alleges Centro misled shareholders about its financial position and seeks damages on behalf of people who bought Centro stock between Apr. 5, 2007 and Feb. 28, 2008. The lawsuit, which Centro has vowed to fight, seeks $190 million in damages.
Centro faces a similar lawsuit filed by its domestic litigation funding firm IMF Australia Ltd., which represents shareholders who purchased the company’s stock between Aug. 7, 2007, when the New Plan deal closed, and Feb. 15, 2008. That lawsuit seeks $95 million in damages.
Since Centro’s troubles became public in December, its stock has plunged more than 80 percent. As of Tuesday afternoon, it was trading at (U.S.) $0.35 per share.