Are we going to see a repeat performance from Centro Properties and Centro Retail Trust?
Three years ago the two trusts triggered the huge sell-off (from mid-December) after they revealed that the first stage of the global credit freeze had cut them off from new funds and refinancing.
More than $10 billion in losses and write-downs later, there’s a whiff of more problems with confirmation yesterday of an earnings downgrade for the first half of the 2011 financial year.
But unlike 2007, the market took the news in its stride, so it looks like the linked Centro companies will not trigger a big fall.
Not that the securities have far to fall. Centro Properties lost half a cent to 15c yesterday and the Retail group shed 1.5c, or 6%, to 23.5c.
Centro Retail Trust and Centro Properties both forecast a fall in earnings for the December half year of 20% to 45%.
Centro Properties said that, "for the half-year ending 31 December 2010, Centro is currently expecting its Underlying Profit to be approximately 45% below the prior corresponding period result of $82.7 million".
Centro Retail said it expected underlying profit for the first half of 2010/11 to be approximately 20% below the $81 million of the prior first half.
"Ongoing declines in occupancy levels within CER’s US investments, which continue to adversely impact overall property performance," Centro Retail said.
"However, previous FY11 Net Operating Income (NOI) guidance of 0% to negative 2% remains, which reflects an improving trend over the prior corresponding period.
“Australian property investment performance which continues to perform well and in line with previous guidance of circa 3% NOI growth for FY11."
"As previously disclosed by (Centro), a variety of market and credit factors in the US and Australia are affecting (Centro’s) first half FY11 underlying operating performance and cash flow," Centro Properties said in its statement to the ASX.
These factors included higher interest rates and the full period effect of increased margins from prior year refinancings in Australia.
They also include lower net operating income in the US due to the appreciation of the Australian dollar, and continuing falls in occupancy levels in the US.
Despite this Centro Properties was optimistic, saying: "Notwithstanding the above, the start to the 2011 financial year with respect to underlying property operations is encouraging.
"Net operating income (NOI) from Australian assets grew at over 4% in the quarter to September 30 compared to prior corresponding period and US NOI growth for FY11 is expected to be within our previously forecast range of flat to negative 2%, an improving trend over the prior period.
"Net profit for the half-year ending 31 December 2010 will be impacted by various noncash items, consistent with those disclosed in prior periods including asset revaluations, foreign exchange movements and derivative mark-to-market adjustments.
"The size of these non-cash items cannot be determined until after the conclusion of the reporting period. As advised in Centro’s 2010 Annual Results Announcement, Centro’s net equity position at 30 June 2010 was negative $2.1 billion, (based upon an exchange rate of $0.84).
"However, every one cent favourable movement in the AUD/USD foreign exchange rate has an approximate $30 million positive impact on net equity (with every one cent unfavourable movement in the exchange rate having a similar negative impact).
"Furthermore, as a consequence of improving underlying property NOI trends as noted above, along with gradually stabilising global property and credit markets, preliminary indications are that we should start to see modestly improving property valuations across both Australia and the US during the first half of FY11.
"The 31 December 2010 property valuations, when finalised, will be confirmed as part of the half audit review.
"Centro has recently provided updates to the market on its syndicate business process and group restructure and recapitalisation process.
"The impact to Centro’s financial results of any potential transaction, restructure or recapitalisation which may arise from these initiatives cannot be reliably estimated."
