In September 2008, the Australian Securities & Investments Commission (ASIC) released Regulatory Guide 46 (RG 46) setting out eight principles for improved disclosure to help retail investors compare risks and returns across investments in the unlisted property sector. Prior to the release of this guide, Centro MCS representatives were involved in consultation with ASIC to offer practical advice and feedback on the proposed disclosure requirements, many of which were already covered in existing Centro MCS communications.
In particular the Guide covers the following disclosure requirements:
Disclosure Principle 1 – Gearing
Gearing Ratio – This disclosure indicates the extent to which a syndicate’s assets are funded by external liabilities. The gearing ratio has been calculated in accordance with ASIC RG 46 which states that entities should disclose a gearing ratio for the scheme calculated using the following formula:
Gearing Ratio = Total interest bearing liabilities (1)
Total assets
In accordance with this formula the Syndicate Gearing Ratio is 99.4%(2) as at 30 June 2010.
(1) Interest bearing liabilities exclude Deferred transaction costs.
(2) For external financier debt loan covenant purposes, Centro Property Trust debt is not included. As 30 June 2010, the Syndicate had breached its LVR covenant.
Investors should note that external financier gearing ratio covenants are generally based on the external financier drawn debt as a proportion of the latest independent valuation for the secured property assets.
Disclosure Principle 2 – Interest Cover
Interest Coverage Ratio – This disclosure indicates the syndicate’s ability to meet interest payments from earnings. The interest cover ratio has been calculated for the 12 month period in accordance with ASIC RG 46 which states that schemes interest cover should be disclosed and calculated using the following formula:
Interest Cover = EBITDA – unrealised gains + unrealised losses
Interest expense
EBITDA = earnings before interest, tax, depreciation and amortisation.
In accordance with this formula the Syndicate Interest Cover is 1.0 times as at 30 June 2010.
Investors should note that external financier interest cover covenants are generally based on the above formula although there are a number of exceptions under certain external syndicate loans e.g. completing a calculation based on net property income instead of EBITDA and completing a 12 month test at a particular point in time.
Disclosure Principle 3 – Borrowing
Syndicate Borrowing – This disclosure provides information on the syndicate’s borrowing, maturity and any associated risks including breaches of loan covenants.
Debt Maturity Profile
| Financier |
Loan Facility Amount |
Undrawn Amount |
Loan Maturity(1) |
| External Financier |
$63.42 million |
Nil |
31 July 2010 |
| Centro Property Trust |
$2.28 million |
Nil |
Payable at reasonable notice |
| TOTAL |
$65.70 million |
Nil |
0.11 years |
(1) Centro Property Trust loan calculated at 12 months loan maturity.
The average interest rate for all Syndicate debt (including weighted average margin) at 30 June 2010 was 7.29% p.a.
Loan Breach Covenant – The Syndicate gearing as at 30 June 2010 was 99.4%.On 30 July 2010, the sale of both CMCS 24 Group's investment properties. Centro Lake Macquarie and Mount Hutton Shopping Centre, were settled for a total consideration of $66.000 million. On the same day, the proceeds from these sales were used to fully settle the external bank borrowings amounting to $63.734 million. This effectively remedied the LVR breach post balance sheet date.
As previously communicated, investors will not receive any capital repayments or distributions as the residual cash balance will be used to extinguish Syndicate liabilities.
Disclosure Principle 4 – Portfolio Diversification
Portfolio Diversification – This disclosure addresses the syndicate’s investment practices and portfolio risks. Relevant portfolio risks are covered in the syndicate Prospectus or Product Disclosure Statement (PDS), subsequent explanatory memoranda or through ongoing investor communication.
Refer to Forms & Publications link below.
Key portfolio metrics are covered in the tables below:
Property Portfolio Statistics
| Property |
State |
Centre Sales Growth |
Occupancy Rate (by area) |
30 June
2010
Valuation (1) |
30 June
2010
Capitalisation Rate |
% Valuation Change (from 30 June 2009) |
Weighted Average Lease Expiry (by income) |
| Centro Lake Macquarie |
NSW |
8.3% |
98.8% |
$56,000,000 |
8.47% |
-5.08% |
8.65 years |
| Mount Hutton |
NSW |
7.1% |
91.7% |
$10,000,000 |
9.36% |
11.11% |
3.38 years |
| TOTAL |
|
8.1% |
97.3% |
$66,000,000 |
8.61% |
-3.65% |
7.74 years |
| FY09 TOTAL |
|
N/A(2) |
96.7% |
$68,500,000 |
8.14% |
-23.58% |
8.39 years |
| FY08 TOTAL |
|
-5.9% |
97.1% |
$89,642,000 |
6.41% |
19.68% |
2.83 years |
| FY07 TOTAL |
|
-1.3% |
N/A(2) |
$74,904,201 |
7.34% |
15.77% |
1.93 years |
(1) Based on cotracted sale price.
(2) Not applicable due to Centro Lake Macquarie development.
Top Retailers
| Retailer |
% of Income |
| Big W |
18.2% |
| Woolworths |
16.9% |
| Coles |
9.2% |
| TOTAL |
44.3% |
Disclosure Principle 5 – Valuation Policy
Valuation Policy – The valuation policy allows investors to understand the basis on which the properties and syndicate units are valued in order to assess the reliability of the valuations. All properties in the Centro MCS portfolio are valued on a six monthly basis. The valuations alternate between independent valuations and Directors’ valuations. If the valuation for the current period is a Directors’ valuation, the next six monthly valuation will be conducted independently. All valuations are conducted in accordance with the relevant industry standards.
Click here to view the Centro MCS valuation policy.
Please see the information under Disclosure Principle 4 (above) for details on the valuations of the asset(s) within this Syndicate including if the current valuation is a Directors’ or an independent valuation and Key Syndicate Statistics (above) for the current and historic net asset backing (NAB) syndicate unit valuations.
Disclosure Principle 6 – Related Party Transactions
Related Party Transactions – For the syndicates, a related party transaction refers to transactions such as investments, loans (refer to Disclosure Principle 3 – Syndicate Borrowing above for details on loans with Centro Property Trust), fee agreements or guarantees with other Centro entities.
All Related Party Transactions are governed by Centro’s Conflicts of Interest and Related Party Transaction Policy. Please click here to view this policy.
The following related party fees were paid or payable to Centro during the 12 months to 30 June 2010:
| Centro MCS 24 |
12 months to 30 June 2010
$000s |
| Property Management Fees |
303 |
| Property Leasing Fees |
76 |
| Responsible Entity Fees |
- |
| Trustee Fees |
- |
| Legal Fees |
17 |
Disclosure Principle 7 – Distributions
Distribution Practices – This discloses whether distributions have been made solely from realised income or from a combination of realised income and a return of capital funded by borrowings or retained earnings from a prior financial year. Centro MCS distributions will not be supplemented with a return of capital component funded by cash reserves or new debt funding. All current and forecast distributions are sourced from realised income.
For the current distribution forecast for this Syndicate, please see Key Syndicate Statistics above.
Disclosure Principle 8 – Withdrawal Arrangements
This Syndicate is a fixed term investment without any general withdrawal right during the fixed term of the Syndicate. However, the Syndicate has a Flexible Exit Mechanism(1) which provides an exit opportunity for investors towards the end of the then current Syndicate term, subject to any earlier restructuring of the Syndicate with investor approval, sale of Syndicate assets or earlier termination of the Syndicate.
The Syndicate could be terminated early by the responsible entity if it exercises its discretion to do so. In that case, the flexible exit mechanism would not apply. The termination of the Syndicate would result in the winding up of the Syndicate and the distribution of all net sale proceeds of Syndicate property.
On 30 July 2010, the sale of both CMCS 24 Group's investment properties. Centro Lake Macquarie and Mount Hutton Shopping Centre, were settled for a total consideration of $66.000 million. On the same day, the proceeds from these sales were used to fully settle the external bank borrowings amounting to $63.734 million.
As previously communicated, investors will not receive any capital repayments or distributions as the residual cash balance will be used to extinguish Syndicate liabilities.
Flexible Exit Mechanism
Generally, the following applies in relation to the Flexible Exit Mechanism:
- on receipt of a notice from the responsible entity, each investor will then, during a further period of 20 business days, be able to “put” (or sell) their Units to Centro Properties Limited (Centro), who is then obliged to acquire the Units. In addition, if any one investor puts their Units, Centro has the right to ‘call’ (buy) all or a specific percentage of all Units which have not been put;
- Centro may pay for the Units acquired with cash, Centro Stapled Securities or both;
- investors take counterparty risk with Centro (ie, the risk that Centro may fail to perform its obligations under the Flexible Exit Mechanism).
The above is a brief summary of the Flexible Exit Mechanism contained in the constitution for the Syndicate.
(1) This is not a right to withdraw from the Syndicate for the purposes of Chapter 5C of the Corporations Act.