Centro Properties and its associate, Centro Retail Trust, continue to struggle as they confront the next 12 months that look even more strained than the outlook was a year ago.
This time back in 2009, both companies reported big losses from write-downs and asset impairments, but at least could hope that the recovering US economy and the improved outlook for the sharemarket might make for easier times.
They did report lower losses and write-downs, but trading profits fell for both in the year to June 30.
And the outlook from this reporting period out into 2011 is much more problematic than a year ago with the US economy souring and sharemarkets going sideways at best
Centro Properties said yesterday in its 2010 report that the net loss for the year was $652.7 million, which is a big improvement from the $3.5 billion loss in 2009.
Centro wrote down the value of its properties by $487.9 million, compared with $2.7 billion last year.
“This improvement is largely due to significantly lower property devaluations and the favorable impact on translation of our net U.S. dollar liability position resulting from appreciation of the Australian dollar against the U.S. dollar,” chief executive officer Robert Tsenin said in yesterday’s statement.
“However, Centro continues to face significant challenges.”
A worry was the sharp 24% fall in the company’s underlying profit (which reflects trading income and costs) in 2010.
Centro said underlying profit for 2010 was $173.8 million compared to $229.2 million for the previous corresponding period, "a result of both reduced Property Investment and Services Business income”.
The rise in the value of the Australian dollar created problems in cutting income from the US but gains, in that it also trimmed the US interest repayments.
Centro last month said it had extended and refinanced $2.7 billion of its US loans and started discussions with lenders on potential restructuring options.
While an agreement with creditors has bought the company time to restructure, currency risks and its complex structure still pose difficulties in raising new capital, Mr Tsenin said in yesterday’s statement.
“Any restructure will be complex and must be critically linked to reducing the leverage and financial risks confronting us,” Tsenin said.
“Subject to market conditions, it is expected that any restructure could take through to the end of 2011 to implement.”
Centro Properties securities fell 5.7% or one cent yesterday to 16.5c.
Centro Retail Group, a listed property trust managed by Centro Properties, Monday reported a net profit of $113.3 million, compared with the $2.7 billion loss a year ago, after extending or refinancing about $1.2 billion of debt during the year.
But the group said it faces a challenging year ahead as it deal with a restructure and cash flow issues.
The group’s underlying profit fell 14% to $160 million in the year to June, from the $186 million in 2009.
The group said the fall was due to the stronger Australian dollar and lower income due to lower average occupancy in its US properties.
No distribution will be made in the case of either trust.
Chief executive Robert Tsenin said it had been a challenging year for the group and a number of financial and structural constraints will continue to impact the business in the year ahead.
He said the retail group "will again face considerable challenges in the 2011 financial year as it embarks upon a restructure and recapitalisation".
The group has a significantly over-hedged US dollar position, due to falling values of its US assets and impairments on Super LLC investment, Mr Tsenin said.
Super LCC is a joint venture between Centro Properties and the trust covering shopping centres in the US.
"CER now faces a major risk with the first of the remaining five outstanding hedge contracts," Mr Tsenin said.
Cash flow also remains under pressure due to the higher cost of debt, the cost of the group’s restructuring, and the obligations of its hedging and debt arrangements, he said.
Negotiations are under way for the refinancing of significant debt maturities in the current financial year, Mr Tsenin said.
"Given the complexity of our structure and the cross-ownership arrangements in place, a reorganisation will be complex and take time to achieve," he said.
The group’s total assets were worth $7 billion at June 30, down from $7.5 billion a year earlier, mainly due to the impact of the higher Australia dollar.
The securities closed down half a cent, or 3% at 16c.
