Australian (ASX) Stock Market Forum

CNP - Centro Properties Group

Did anyone buy into this at it's low 44cents? Its now back to 71Cent.... I cant believe how fast its sky rocketed
 
I only see the CEO announcement when I check, the second announcement must have come after I check :D doh look like it wont be going back up any time soon
 
vishalt,
I didn't borrow to buy these, and the majority of my invested funds are in "safer" stocks, so to a certain extent you're right.
But I'd still call it a non trivial amount of cash and I would be.. er.. saddened to see it dwindle to nothing!
As you said - it's a gamble!

Anyway, moving forwards.. should we start taking bets on which way it will go now?

I'm fighting the part of me that wants to follow the crowd and sell out now to cut my losses.
Kicking the part of me that wants to buy more now because it's "cheap" - already invested(gambled?) in this stock as far as I'm willing.
Ideally I'd like to sell for at least the price I bought in at, and learn a bit more before jumping on such volatile stocks in the future (I picked a shocking time for a beginner to get into shares by the looks of it!)

From what I can see from the company press releases, hyped up media and general conceusus on here it could still go either way..
 
Just something I do if I am ever tempted to bottom pick a falling machete... if I owned these would I be rushing to sell...
Cheers
..........Kauri
 

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Remember law suit could follow for share holders who bought in before the crash IF this stock recover due to Centro understate its liability.
 
I wouldn't be placing too much reliance on any class action - it's a very long road. Take a look at SOG. That's been ongoing for 4 years or so now and is still a very long way from a resolution.
 
So does anyone know what kind of cash flow of this company has or will have? I am very confident the US economy wont go into recession because of future monetary policy from their CB. This stock could be a major boom provided the sub prime incident hasn't evaporated this companies potential for future profits.
 
So does anyone know what kind of cash flow of this company has or will have? I am very confident the US economy wont go into recession because of future monetary policy from their CB. This stock could be a major boom provided the sub prime incident hasn't evaporated this companies potential for future profits.
It has to survive first before it can have a cash flow. If it can't refinance there will be a firesale. Some nasty rumours about disclosure as well. And even if the US doesn't go into a recession, I don't think we've seen the worst there yet either. :2twocents
 
the only problem this stock seems to have is its inability to refinance debt.
it has over 90 % occupancy for its tenants, which in australia include coles and woolworths, so it has good cash flow. its just overgeared, and has been caught out by the lack of liquidity in the lending market.

it would be risky, but i think it would be worth putting a few dollars in about now, . i cant se how it could go any lower, and at CNP only .60 an CER at .38 a few cents up could mean some big gains.


the big banks are the unsecured creditors as well for about 3.5 billion, so i couldnt see them let it fall over.

i wouldnt be surprised to see a buy out by westfield or macqaurie
 
Sitting on low 50's today. Just keeps getting worse and worse!
With a market cap of only 500M now, are investors valuing this as a long shot gamble and nothing more?
To my knowledge their assets far, far exceed this number. Surely there is still money to be made for their financiers, and they'll only lose money if they force a fire sale. WTF?
Note to self.. commence degree in economics ASAP.

At the moment I'm sitting on approx 50% loss, I figure that it's worth taking the gamble given the amount of money already lost.
Any estimates on a rebound figure should the beast NOT be destroyed utterly? I'd be thinking $0.90 - $2 range...?
 
If you read on most of the paper on CNP, most experts pretty much come to a conclusion if there is a fire sale for this stock, there isn't any value left for share holders.

There is an article on AFR over the weekend, that put this stock on -ve share value in one scenario that could happen.
 
Hi guys,

I've been fascinated by the Centro story since "the big fall". I've read a lot of articles about Centro but most are just uninformed negative commentary and speculation with hardly any real ANALYSIS. Typically this leads to massive overreaction by the market.

For my money, the key is how solid is the $26.6B asset valuation vs. the known $18B debt. Even if those figures are a bit rubbery and they have to sell off some assets at a discount to meet their $1.9B immediate debt (there seems a lot of confusion about this too??? many say $3.9B but I don't think that all falls due in Feb?) That still leaves a fair bit of shareholder equity.

Can someone explain where I'm wrong on this please. It's driving me nuts!

9k
 
I think the real risk in Centro, is not so much the debt, but the valuation of the US properties. There is a large risk the US assets are materially overstated and the short fall could result in liabilities>assets in a forced sale scenario.
 
Hi guys,

I've been fascinated by the Centro story since "the big fall". I've read a lot of articles about Centro but most are just uninformed negative commentary and speculation with hardly any real ANALYSIS. Typically this leads to massive overreaction by the market.

For my money, the key is how solid is the $26.6B asset valuation vs. the known $18B debt. Even if those figures are a bit rubbery and they have to sell off some assets at a discount to meet their $1.9B immediate debt (there seems a lot of confusion about this too??? many say $3.9B but I don't think that all falls due in Feb?) That still leaves a fair bit of shareholder equity.

Can someone explain where I'm wrong on this please. It's driving me nuts!

9k

Pretty easy to calculate based on those figure
18B debt
26B asset (based on inflated price and valuation)

come fire sale take at least 30% off the valuation in some case more
that leave it with 26B - 7.8B = 18.2B

What is left for share holder?? Nothing zippo.
 
Yeah, that's great BUT they don't have to sell everything to cover 1.9B or even 3.9B debt - do they? And what they pay off, they no longer owe.

Also if they are only selling some assets, they would be silly to sell the ones that they will have to discount the most, however lets say they sell 7.8B of book to cover 3.9B (i.e. 50% of current value - Mega Fire sale prices)

We now have (26,6 - 7.8) - (18 - 3.9) = 4.7 Yeah? :banghead:
 
Yeah, that's great BUT they don't have to sell everything to cover 1.9B or even 3.9B debt
There lies the problem - the market doesn't know how much of their assets they'll have to sell to cover the debt position. Also, I would hope they wouldn't sell of their good properties to hold their position in the crappy ones. Wouldn't be a lot of point would there?
 
An extract from Eureka Report.
It is ironical that in the same magazine Robert G has strongly recommended to buy CNP when it was $12 and only it was three months ago.
So read with care and research carefully.

Centro: The warnings we all missed
By Robert Gottliebsen



PORTFOLIO POINT: The Centro collapse offers two clear lessons: beware complexity, and investments you don’t understand.


What is amazing about the Centro collapse and the Citicorp writedowns is that, with the benefit of hindsight, both companies made the same mistakes that have caused countless corporate downfalls in recent decades. And in each case there were clues to the looming demise that we did not pick up.

So let’s look at what we can learn from each situation and apply it to the future. In the case of Centro, what fooled me, the directors, the banks and the superannuation fund managers was that, unlike so many previous crashes, the underlying assets were well-managed (shopping centres) with high cash generation.

In the US, these centres represented a fantastic hedge against any recession because the American economy would have to sink very low before food retailing was affected.

But Centro and Citicorp shared a common flaw that has wrecked so many companies: they had complex asset ownership structures that masked basic problems from not only shareholders but management and directors.

In the case of Centro, the basic structure was complex and assets were owned in different levels with different stakeholders, and studded around these complex structures were joint ventures. It was a reporting nightmare. In the case of Citicorp and many other banks, including Merrill Lynch, they were selling off loans to illiquid structured investment vehicles (SIVs) forcing the banks to buy back the paper. Australian banks’ securitsation structures have access to liquidity but have not been tested by major defaults. Citicorp operated across the globe in a vast number of sectors and reflected the genius of former chief executive Sandy Weill. Successors often have difficulty managing such organisations.

Unlike Centro, Citicorp and Merrill Lynch made a mistake that often hits companies: they simply didn’t look at the underlying asset behind the revenue generation. Instead, they gained solace from the fact that “everyone was doing it”. Sub-prime loans were being generated by mortgage dealers and had not the slightest chance of being repaid under the terms set out.

What’s significant is that in the 1970s, Citicorp and the other leading US banks did exactly the same thing, but instead of lending to US residents who could not pay they lent to impoverished countries that also had not the slightest chance of repaying. In three decades all corporate memory had been erased.

Yet the combination of complex structures and assets of dubious worth caused the Enron collapse and has been a characteristic of bad bank lending in many Australian property booms.

It is always difficult for shareholders to determine that a lending asset class is flawed but one would have thought that the broader US investment community would have had the resources to do the work.

Nevertheless, we have two clear lessons: beware of complex joint venture structures and don’t invest in companies unless you are very clear how they make their money.



The Centro collapse was triggered by another feature of past collapses: massive over-borrowing. Yet when you looked at the group’s presentations for the year to June 30, 2007, borrowing seemed to be under control. However, with hindsight there was a clue that we all should have picked up. The gearing of Centro Properties on a so-called “look through” basis (which incorporate joint ventures) rose from 26% to 48% and the asset backing for the shares fell from $3.63 to $2.29. The company had explanations for these events, which obscured the fact that Centro was exceeding its own borrowing guidelines and had done so very quickly. It was a clear warning signal.

But there was a third clue that we all should have picked up. No company should ever undertake more than one large expansion at a time. I will never forget BHP being pushed to the edge of collapse in the 1990s when it undertook two huge projects – Magma Copper and the WA hot briquetted iron plan – that were both disasters. Centro undertook three big international acquisitions and doubled its funds under management in one year. At the same time it undertook a major time-consuming internal structural merger. That sort of expansion and internal reorganisation requires everything to go right. Many Australian and international companies have simply collapsed under the management strain of over-expansion. When it is based on borrowed money and a complex ownership structure it is a lethal cocktail.

Of course these are hindsight judgements, which in the case of Centro were obscured by the basic soundness of the business. Although sub-prime fallout triggered Centro’s collapse, slower growth would have enabled management to focus on the vulnerability of the group.

An obvious structural weakness for Centro was that one of the layers of ownership held two unlisted property trusts where superannuation funds could withdraw money, very similar to the unlisted property trusts that collapsed the last downturn. For years superannuation funds had been hosing money into these two funds so it seemed inconceivable that a run might develop. The original plan was that if there was a run, the holding company (Centro Properties) would inject the extra money. And in past years it could have done that, but at the time of crisis Centro Properties was highly leveraged and it simply wasn’t possible.

What is amazing is that three of Australia’s big four banks lent Centro Properties most of its $3.5 billion unsecured loans. What this shows us is that, like Citicorp, some of our bankers have forgotten the lessons of history. It is ironic that if there had been a little bit of old-fashioned corporate conservatism among our big banks it might have just triggered an alert on the Centro board, which would have saved the company given the quality of its assets. Australian bank shares have fallen sharply, partly in line with all other global banks.

This has confused a lot of Australian stockbrokers, who point out that Australian banks don’t have the sub-prime exposure of Citicorp. Centro and loans to the US Countrywide group are danger signs. But the Australian banks have two other structural problems that are similar to Citicorp and Merrill Lynch.

First, while the Australian banks’ lending quality may be better than Citicorp, Australian banks are very dependent on overseas borrowings and on the workings of the derivative market, which converts US dollar borrowings to Australian currency. The cost of those loans has already risen and could rise further. Given the attitude of the Australian Government, there will be great pressure for the banks to not pass on these extra costs.



Citicorp also depends on the wholesale funding market. The US Federal Reserve is flooding the American banks with money so that they can continue to maintain customer lending in the face of a wholesale market that has contracted and become more costly. The second weakness Australian banks share with Citicorp is that mindless government regulations have turned bank board meetings into useless box-ticking exercises to comply with so-called “corporate governance”. Most of it is a waste of time and after directors have gone through a day or so of this soul-destroying useless activity there is grave danger that they will not spend enough quality time looking at the base strategies of the business.

I am sure this contributed to Citicorp and other US bank boards not focusing on the stupidity of the sub-prime circus. Australian banks’ regulation is not as bad and they are not as complex but mindless regulation makes them potentially vulnerable.

Investors should realise that there are a few more nasties to come out of the US and it is this fear of the unknown that pushes the market down day by day. For example, “monoline” insurance companies have insured $US2.3 trillion worth of loan risk, including about $US600 billion in vulnerable US assets. Some of the insurance companies are simply not in a position to stand anything more than token claims and have been as silly as the sub-prime banks. Yet vast sums have been lent on the basis that these insurance guarantees accord triple-A ratings to dubious paper.

In addition, there is a commercial property crisis in the UK and S&P 500 companies have $US2 trillion in goodwill, which will create more big writeoffs in the US downturn. The real problem is that we went for so long in the good times that we forgot the lessons from the past.
 
One more report from Eureka Report on Centro

No, it’s not a bargain By Quan Gan



PORTFOLIO POINT: Even with a price/earnings multiple of 0.1, Centro is a stock investors should treat very cautiously.


Dropping from about $10 per share before Christmas to less than 50 ¢ today (January 18) Centro Properties is a classic example of rapid growth followed by sharp collapse.

Does its low price mean the stock is a buy? My answer is no.

Recent share transaction records show institutional investors such as UBS and Barclays are selling. That should have retail investors asking themselves whether they really know more than these institutional investors? Either way, there are some facts you should know about Centro.

Centro’s current financial structure is very complex. Its 2007 annual report shows Centro holds 50% interest in two diversified funds. In turn, these diversified funds hold 50% interests in a bunch of ownership funds, which hold full ownership on real property assets.

This so-called two-tier ownership gives Centro flexibility to diversify its portfolio. It also makes it more difficult to gauge the group’s underlying value. In total, Centro manages 810 shopping centres indirectly through this two-tier ownership structure, 128 in Australia and 682 in the US.

Even a Big Four auditor needs months to trace all the financial details of 810 retail properties. It’s very complex. And looking back through Centro’s annual reports for the previous five years shows the financial structure has become more complex with time and that its level of borrowing has increased.

Investors may compare Centro with its major Australian competitor Westfield. It is the largest shopping centre company in the world, yet it manages only 44 shopping centres in Australia and 59 in the US, according to its 2007 annual report.

The current policy at Centro is to set the interest cover ratio at two times. This is obviously very low and should be another warning sign.



On January 15, Centro announced it had appointed a new chief executive, Glenn Rufrano (who arrived in Australia from the US yesterday), after the resignation of former CEO Andrew Scott. Meanwhile, Centro’s lenders were considering extension of its loan arrangement.

But then Centro revealed another two warnings.

In its first warning, Centro said its foreign exchange hedging was down from 99% to 80.7% and the level of hedges is below internal policy requirement. Centro generates large proportion of its revenue from its US operation. Given current US market performance, significant decrease of Australian/US dollar hedging positions may introduce high volatility to Centro’s Australian dollar-denominated cash flows. This of course makes it harder to value Centro’s business.
Next, Centro indicated there was a prospect to reclassify a proportion of its non-current debt into its current debt. There is still no concrete information regarding the size of such reclassification. If it is large, Centro runs the risk of financial reporting fraud.

Investors may still be tempted to invest on the basis of very low price/earnings multiple (less than 0.10) or similarly super-low price-to-book ratios. They should tread warily. These two ratios are not valid measures given that Centro’s going concern status is in doubt. Investors should bear in mind that if a company is vulnerable to going bankrupt and is unable to continue normal operations, the price/earnings multiple and price-to-book ratio cannot be used to determine its relative value.

The macro-economic environment also makes Centro’s situation more difficult. The US economy is on the fringe of what might be a severe recession. You may expect Centro’s performance (at least its short-term performance) to be severely impacted.

It is important to distinguish speculation from investment. Putting money in a company with so many problems does not leave investors a margin of safety. My suggestion is clear: stay away from it.


Quan Gan is a associate lecturer at the Australian School of Business of the University of New South Wales.
 
Yeah, that's great BUT they don't have to sell everything to cover 1.9B or even 3.9B debt - do they? And what they pay off, they no longer owe.

Also if they are only selling some assets, they would be silly to sell the ones that they will have to discount the most, however lets say they sell 7.8B of book to cover 3.9B (i.e. 50% of current value - Mega Fire sale prices)

We now have (26,6 - 7.8) - (18 - 3.9) = 4.7 Yeah? :banghead:

If they sell the lot and 30% off valuation
you got no Centro ... you just got 18B to pay 18B debt Centro owns the bank and game over, nothing left for share holders.

and if they manage to sell off 3.9 Billion to meet their debt by Feb 15, how much stuff do they need to sell? no one know it could be 50% of Centro asset, it could be 20%, it could be 30%.

Once the sale is done they still owns banks money and they will revalue
the whole Centro asset. What is that going to be? again who know, you could have asset less than liability or the other way around where you got more asset, again no one know.

too many unknown :confused:

If someone can put a value on CNP say around $1 for certain and it selling for 50 cents I buy alot of it but no one can, there lies a problem.

Would you go and buy a TV without knowing how much it worth? buying what ever price they label, it may look cheap and sound cheap but is it actually cheap?

you need to know it rough values and buy it otherwise you may get ripped off.

I think Centro fall into this TV category :D

I like certainty, something I can reasonably predict that make me money 1 year from today and 20 years from today and I work out how much all of those sum worth then I work out the share price, then I factor in my margin of safety then I go shopping when the price is right. Put your money into the unknown is gambling, you dont know what card you get deal next.
 
Centro has only three weeks left to raise the moolah, right?

So, firstly, how long will it take for Centro to SELL enough assets to cover the debt payable on that date and secondly, how long would it take for the sale cash SETTLEMENT to go through?

Everyone seems to be thinking Centro can sell at a moments notice and *bingo* the cash is instantly available, but I would have presumed that most financial settlements from the sale of major commercial assets take a darn sight longer to go through than the three weeks left?

AJ
 
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