Centro’s debt worries remain its biggest concern, despite reporting a turnaround first half profit of $553.4 million.
The Centro headstock has $3.1 billion of direct debt maturing at the end of this year.
Across the entire group, including listed spin-off
In total, Centro controls $16.5 billion of retail assets – 696 properties in the US and Australia – which rest on $16.0 billion of debt.
A group of about 55 hedge funds which own the majority of Centro’s headstock debt will have a powerful say over the property trust’s future.
“As a group they would consider taking equity positions in the company through debt-equity swaps," chief executive Robert Tsenin said.
“They would even consider putting in new capital if required. In some cases they have longer term horizons than more traditional banks."
Mr Tsenin’s frank remarks add weight to speculation that the hedge fund group, which includes giants such as Paulson & Co and Appaloosa, are contemplating a longer term play with at least part of the Centro empire.
Considerable conflicts would have to be resolved between the different elements in the Centro empire, including both its listed entities. Centro Retail Trust this week reported close to $1 billion in positive equity, while the parent company has negative $1.6 billion in equity.
One solution mooted would be to somehow merge the parent into its more buoyant spin-off, although it would have to reduce its negative equity burden – perhaps through a debt-for-equity swap.
“I can’t talk about the specific lenders but overall there is a willingness and we are being encouraged to think more broadly in terms of the recapitalisation and restructuring options," Mr Tsenin said.
Centro’s interim profit, following a $63.2 million loss in the previous corresponding period, was driven largely by the stronger Australian dollar, which reduced the impact of debt in the balance sheet.
Centro’s underlying profit dipped 42 per cent to $48.2 million.
In this case, the strong Australian reduced the value of US-derived profits, while interest rate increases also added to costs.
Centro’s Australian shopping centres continue to perform much better than its US malls, which reported a 1.1 per cent decline in net operating income over the half. The Australian centres booked 4.2 per cent growth in net operating income.
The Australian Financial Review