Woes Mount for Centro as Suit Claims Property Group Misled Investors

Beleaguered Centro Properties Group, the Australian property group that just recently won a $6.2 billion debt extension, faces new troubles.  A lawsuit filed on May 9 alleges that Centro and its Centro Retail Group breached their obligations to keep investors fully informed between Aug. 9, 2007 and Feb. 15, 2008, according to report today from Bloomberg. The suit was filed May 9 in Australia’s Federal Court, and was announced by IMF Australia, a fund that invests in lawsuits. As reported by CPN on Feb. 29, Centro announced a record loss in the six months ending Dec. 31, 2007 of $1 billion, due in large part to the company writing down the value of its U.S. shopping malls. In mid-February, in a statement filed with the Australian Securities Exchange by Centro, the company said it was given an extension from about a dozen of its creditors to settle about $3.5 billion in debt. The agreement, with major Australian banks as well as Bank of America, JP Morgan and Wachovia, stipulated that much of the debt be extended until the end of April, while the portion Centro accrued due to its expansion in the U.S. was extended to Sept. 30. Centro had just negotiated another extension when the suit was filed. Centro accumulated a large portion of its debt when it purchased U.S. retail assets in 2006 and 2007, notably New Plan Excel, a REIT that specialized in neighborhood and community retail centers. Centro funded the buy with short-term debt that was to be replaced later by CMBS financing. But Centro became a victim of the credit crunch, as conduit loan origination slowed dramatically in the second half of last year. IMF Australia has also filed class action suits against two other Australian property companies, Allco and MFS. U.S. shopping center owners are facing increasingly stiff challenges as consumers pull back on spending due to rising gasoline prices and falling home prices. According to its forecast for commercial real estate, released in April, ING Clarion predicts that retailers will likely focus on same-store profitability, and should temper expansion plans over the next 12 months, thus negatively affecting retail rent growth. ING forecasts that demand for retail space should rebound in 2010 and 2011, contingent on the level of economic growth and the housing market.