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Home > Lessons For The Smaller Investor From Centro
NEWS
LESSONS FOR THE SMALLER INVESTOR FROM CENTRO - 14th January 2008
This Australian and International Property Trust and funds management Group is in the spotlight because of the massive loss in value of its shares in recent weeks and for creating negative sentiment in this property sector. Other listed quality property trusts have been put under the microscope and had their prices clipped perhaps without just reasons.
Experiencing difficulty refinancing due funds in the many Billions of dollars on it Commercial / Retail portfolio is the stated problem for Centro Group, but how did it get to this and what are the lessons we can learn?
- Centro in a few short years grew from a few holdings of shopping centers in Australia to owning hundreds of neighbourhood centres in the USA and Australia. The rate of growth of Centro has been incredible and has drawn attention and obvious questions including: Was growth more important than quality? Was expansion the priority over increased risk? Can there be that many "good" deals around in that short space of time?
- Quality of property acquisitions is questionable because quality is usually tightly held. The sheer number of acquisitions and often the heighbourhood they were in, suggests a number were not quality
- Level of gearing being 70%+ would probably have not be a consideration in itself but coupled with the reasoning in the two points above it becomes relevant.
- Centro’s Finance structure and policy that did not spread the long term funding into several parcels with diversification of maturity dates so the refinancing need at any one time was much more manageable and never critical. When you get to a size and you are acquiring some questionable property then don’t put all your financial eggs in one huge parcel and be at the mercy of the banks to refinance the lot.
- The Structure of the Centro Group is complex with at least three entities interwoven, perhaps to protect from take over. One entity holds a significant number of the properties, another is a funds management company and there are huge numbers of USA debenture holders in another entity. The end result is that it is proving very difficult for a sale of assets or for a sale of one of the entities.
The lessons to be learned for the smaller investor from the above are:
- Don’t try to grow your portfolio too fast, be patient and wait for the right property and the right timing
- Quality is its own reward, ask us about our 4Q rule.
- Don’t put all your financial eggs in one basket and with one bank
- Keep the purchase entity simple, transparent and understandable to facilitate funding and future salability as we do in all our simple Commercial Syndications.
Feel free to comment or ask any questions
Gil Williams
Managing Director / Land Economist
gil@buyersadvocate.com.au
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