Centro selling Queensland mall as investors quit fund

SYDNEY: Centro Properties Group, the Australian developer that posted a A$3.5 billion (RM10.6 billion) loss last year, is selling its Surfers Paradise mall after failing to attract investors to replace those withdrawing funds.

Centro is seeking to offload the A$202 million shopping center on Queensland’s Gold Coast to pay investors who exited MCS 11, the unlisted syndicate that owns the property, at the end of its term on March 3, Melbourne-based Centro said in a letter to investors dated March 9.

“Investors wanting to get out of unlisted property trusts are effectively queuing up as it becomes evident that there are various problems with syndicates,” Winston Sammut, Sydney-based managing director of Maxim Asset Management, said in a telephone interview. “The fact that this is Centro just adds to the pressure.”

The sale may not fetch the full value of the property, Centro said. If offers received are “substantially less” than the mall’s value, Centro will consider alternatives, including extending the syndicate’s term by a few years to delay the sale of the property, the developer said. Any such action would need approval from 75% of investors, the company said.

Extending the syndicate’s term “would be a very hard ask”, Sammut said. “The evidence now is that investors do want to get out. But if the offers they receive are at a huge discount, investors may not have any choice but to go along with extending the term.”

Many unlisted funds froze redemptions and sold off assets throughout 2009 to shore up balance sheets hit by the global financial crisis. The funds, unable to recapitalise through equity sales, have lagged behind the recovery in listed property trusts. The Mercer/IPD Australian Pooled Property Fund Index fell 8.4% in the 12 months ended Feb 28, compared with a 30.4% gain in the S&P/ASX Property Index.

Centro, which owns more than 600 malls in the US, reached agreements with its creditors to restructure assets on Dec 24. The company’s market value has plunged by some A$7 billion since June 2007 as it struggled to refinance debt after the global financial crisis froze credit markets. Former Centro Chief Executive Officer Andrew Scott borrowed to buy US$9 billion (RM29.9 billion) of malls during 2006 and 2007, then spun off the centers into more than 30 syndicates, three wholesale funds, two unlisted property funds and one listed property fund, which Centro then managed for a fee.

The Surfers Paradise mall’s value has fallen from A$232 million in December 2007, the Australian Financial Review reported on March 15.

The company may see more success in its strategy of selling off smaller assets, valued at between A$10 million and A$50 million, to private investors who don’t have to rely on bank financing, Sammut said.

Centro Properties last month reported a net loss of A$63.2 million in the six months ended Dec. 31 after declines in property values slowed. The developer had reported a net loss of A$3.54 billion in the 12 months ended June 30, 2009, after writing down assets by A$2.5 billion.

The shares declined 4% to 24 Australian cents at 1.27pm in Sydney on March 15. -- Bloomberg LP