Another Blow To Centro Investors

The Age

Saturday September 13, 2008

Carolyn Cummins

INVESTORS in the unlisted Centro direct property funds may see no cash for some time unless assets can be sold and the cross-ownership structure in the troubled Centro empire can be unwound.

It is another blow to investors, who had been hoping that asset sales from other Centro funds in which they invest could be sold to generate cash for distribution.

Centro Properties, as the overall manager of the unlisted funds, froze redemptions in the $2.5 billion Direct Property Fund and the $1.94 billion Direct Property Fund International in late December, when it revealed a $3.9 billion debt-funding shortfall.

Since then, investors have received only a 4.64 payment from the DPF and 4.35 from the DPFI for last financial year.

The news comes as the overall group, Centro Properties, nears its own deadline of September 30, by which time it needs to have reached agreement with its banks for another extension - until December 15 - to repay debt.

Reflecting the complicated nature of the Centro business, the two unlisted funds, DPF and DPFI, are open-ended unlisted property trusts that invest primarily in Centro Australian and American property syndicates and funds.

As a result, investors in the funds will get cash only when the other Centro trusts sell assets. But as with the Centro MCS syndicate businesses, DPF and DPFI are quarantined from the overall group's debt problems, in that investors in these funds and syndicates have first right of cash from any asset sales.

DPFI is the largest investor in Centro America Fund, with a 49.9% interest. The Centro America Fund investment represents about $224million of DPFI's total assets of $1.5billion.

Centro chief executive Glenn Rufrano told financial planners via a webcast yesterday that it remained unclear when the DPF and DPFI vehicles would resume trading and whether they would receive much cash, if any.

"We anticipate the funds' suspension will continue in the foreseeable future and cash will only come in when asset sales occur from the funds in which DPF and DPFI invest," Mr Rufrano said.

"We are moving to simplify these ownership structures, but it's a slow process."

Responding to emailed questions, Mr Rufrano and Alan Hayden manager, direct property funds, said the current climate was not the best in which to sell assets. "It maybe a more productive strategy to hold on the asset sales until such time as the values improve to reflect the book value," Mr Hayden said.

Mr Rufrano also repeated that he was in discussions with Centro's bankers about extending the September 30 deadline.

"These assets in Centro are the banks' collateral and we think we are still the best managers of these assets," Mr Rufrano said.

"Whether that (sentiment) continues to prevail over the next few months, I just don't know."

KEY POINTS

Investors in Centro's direct property funds may have a long wait for any cash.

It remains unclear when the unlisted funds will resume trading.

© 2008 The Age

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