Credit Squeeze Squeezes Centro

The global credit squeeze has Australian property giant Centro, and its affiliate Centro Retail Trust, scrambling to refinance its debt, much of which it took on to finance a major round of property acquisitions in the United States less than a year ago. The company has about A$1.3 billion ($1.03 billion) in short-term debt obligations maturing soon, along with A$1.4 billion ($1.2 billion) in joint venture funding as maturing soon, though the company has obtained an interim extension from its creditors until February 15, 2008.

"The current state of the debt markets has made it very difficult for Centro to achieve long-term financing of our maturing facilities," Andrew Scott, CEO of Centro, said in a hastily called conference call Monday morning in Australia (Sunday afternoon in North America). "It's fair to say that the conditions around the world in the credit markets have made it difficult to refinance maturing debt."

According to Scott, the interim extension, which Centro obtained over the weekend, "provides us with the opportunity to review the many options available to us to secure the long-term capital structure of Centro and our managed funds, and establish how we can reduce current gearing levels at Centro."

Such options might include assets sales to reduce debt, but at fire-sale prices the company would rather not accept. The company now has only two months to find new financing, or face the prospect of unloading assets quickly. Creating joint ventures to transfer assets to might be another such option, one probably preferable to outright sales, but it isn't clear how easy that would be for Centro.

Over the last two years, the company's assets under management have ballooned from about A$9.9 billion to A$26.6 billion, mainly as a result of acquisitions in the in the United States, especially New Plan Realty Trust. Centro completed the acquisition of New Plan in April, adding the former US REIT's 467 neighborhood shopping centers across the US to its portfolio.

"It's been our policy to manage debt and interest-rate risk by sourcing debt from international markets," continued Scott. "We took the view that the long-term refinancing of our debt obligations would be available at attractive terms through the US CMBS markets," which had been offering ten-year debt.

He pointed out that over the five years before June 2007, CMBS issuance had been over $80 billion per month. "We therefore never expected -- and it couldn't be reasonably anticipated -- that the sources of funding available to us, and to many companies, would shut for business," Scott said. As the CMBS market closed, he added, the company turned to banks, "but that market has also tightened significantly, even further in recent weeks."

The beleaguered CEO stressed that the company's problems do not extent to the underlying assets, "with our shopping center portfolio performing well."

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source: commercialpropertynews.com