Another Example Of Disastrous Over-leveraging

Implications: With debt of of roughly $17 billion and $3.4 billion in short term debt due to be paid or refinanced by April 30, can even the most ardent suitors expect to be able to do the necessary due diligence to come up with any kind of a rational offer within the next 3 weeks? Alternatively, is this another Bear Sterns $2.00 a-share-type buyout? It is my belief that the outcome of this bidding process will reveal a great deal about whether or not the retail real estate bubble has really burst or if investors have learned anything about valuing troubled and over-leveraged REITs.

Analysis: Citadel Investment Group is the only suitor named thus far . None of the other suitors or values of the bids have been revealed as yet. However it is interesting to try to understand what is going on behind the scene and, even though GLG News readers have pulled in their horns about making new investments, I suspect that there are several clients that consider Centro too tempting a target to pass up.

What we have here is a failure to communicate.

Centro was a very small Australian-based strip center landlord in 1998. Today they are listed as one of the largest landlords of strip centers in the world. While this was happening no one seemed to notice or care that they were growing by first overpaying for mediocre properties and then over-leveraging those properties expecting the real estate and debt bubbles to continue indefinitely.

When they got caught everyone seemed to be amazed that such a thing could happen to such a large REIT in an industry that was supposedly "recession proof". 

I suspect that the same people who bid the price of Centro's shares to $9.10 last year, will be circling the carcass  with thoughts of grabbing a real bargain. I submit that the true value of this company is much closer to the $1.00 level the current market has set than the $9.00 level the over heated retail real estate market set last year.