The embattled shopping centre Group Centro Properties is having real trouble staying afloat in the growing troubles besetting local and world financial markets.

Last week it failed to reveal to the market that an attempt to sell Bankstown Square shopping centre complex in Sydney’s southwest had failed and the sale aborted because of lowball offers: the news was conveyed to the part owners, via a related website of the MCS 28 investment syndicate.

Then, according to a weekend report of a webcast Friday to a group of fund investors and reported in the media this morning, the sale of US shopping centres valued at more than $US700 million had fallen over.

The Australian reports this morning:

CENTRO’S much vaunted $US714 million ($887 million) US shopping centre fire sale is far from certain, with chief executive Glenn Rufrano warning yesterday that even if the sale went ahead it would be at a lower price.

Mr Rufrano said the contingent sale agreement had left Centro at the mercy of the markets, making it unable to give any assurances that the sale of 29 properties across 15 states would be finalised.

But the Centro chief said there was more certainty about the buyer wanting to pay less than the $US714 million price agreed in mid-July.

“We expect the buyer to re-negotiate the price,” he said.

And that proved to be true because this morning that was reported to the ASX as:

On 15 July 2008, Centro Properties Group (Centro) announced that it had entered into a contingent agreement for the sale of the Centro America Fund (CAF) portfolio to a private real estate investment advisor. The agreement was subject to certain closing conditions, including a due diligence period and lender consent.

“Centro now advises that the due diligence period has expired and the purchaser has elected to terminate the agreement. Notwithstanding termination of the agreement, discussions between Centro and the purchaser are continuing. No assurance can be given that those discussions will result in the parties entering into a further agreement for sale or as to the terms of any further agreement, if entered into.”

It would have been just as easy to have issued the statement Sunday afternoon. That is what email is all about, isn’t it?

And what Centro failed to remind people reading this morning’s statement was the provisional sale price of $US714 million and the pertinent fact that that price was a discount.

“The contract price of US$714 million represents a 10% discount to previous book value.” Centro said in the July 15 statement.

Now there’s no asset sales, except some $US66 million worth of property earlier in the year, and the company and its associated retail trust, Centro Retail Trust, have a deadline of September 30 approaching.

With the problems surrounding Lehman Brothers and Merrill Lynch, there’s no doubt no deal or restructure proposal will be available by September 30 or December 15.

In the July announcement Centro said that it had entered into an agreement to sell 29 of the 31 properties in the Centro America Fund (“CAF”), a wholesale fund managed by the Centro group, to a private real estate investment advisor. Centro’s direct interest in CAF is 46.65%, excluding Centro’s holding in the Centro Direct Property Funds.

The 29 properties aggregate 5.1 million square feet and span 15 states. The agreement excludes CAF’s partial share of Independence Mall, located in Wilmington, North Carolina, and Elk Park Center, located in Elk River, Minnesota, which will continue to be held by the fund. In connection with the sale, Centro will provide management and leasing services for the 29 assets for a minimum of one year in exchange for market fees.

“The contract price of US$714 million represents a 10% discount to previous book value. Centro expects to use the net proceeds to pay down outstanding indebtedness. The agreement has been approved by CAF’s investors and is subject to certain closing conditions, including a due diligence period and lender consent, and there can be no assurance that the transaction will be consummated. Settlement is scheduled to occur in late September to October 2008.”

So no deal in the US and no chance of one here in Australia. It’s no wonder the securities in Centro Properties fell 2 cents, or 19.5% to a record low this morning of 8.5 cents. Centro Retail securities plunged 24% to 11 cents this morning, down 3.5 cents.

There’s tens of billions of dollars of property on the market of being touted by the likes of GPT, some of the Macquarie and Babcock and Brown funds, MFS/Octivar, City pacific, Westpoint, Mirvac and a host of other groups, failed, near failed or prudent. Gold Coast property group, Raptis, has over $700 million up for grabs, and that will rise as it struggles to find buyers, of which there are none.

The market is saying the end is close for Centro and the Retail Trust. The two groups face the very real prospect of following Octaviar (part of the old MFS group) into voluntary administration.

But for all intents and purposes Centro is all but in administration now with the management looking after the company and being funded by the banks and from cash flow from the shopping centres. Administration would force the banks to start provisioning for the loan. Some, like St George, might not like that.

Peter Fray

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