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With Debt Deadline Looming Centro Changes CEOs

With a Feb. 15 deadline to pay off or refinance $3.5 billion in short-term debt exactly one month away, embroiled Australian listed property trust Centro Properties Group made a sudden change at the top. CEO Andrew Scott stepped aside on Tuesday and was immediately replaced by Glenn J. Rufrano, Centro's CEO of U.S. operations and former CEO of New York-based REIT New Plan--the firm Centro acquired back in February 2007 for $6.2 billion in a deal that saddled Centro with some of the debt its struggling to pay off today.

The move comes in the middle of Centro negotiating with lenders including BNP Paribas, the Royal Bank of Scotland and JP Morgan Chase, among others, and accepting acquisition bids from prospective suitors. Scott had been handling the sale, but the duties will now fall to Rufrano. Analysts that cover Centro say the move is meant to be an olive branch for Centro's lenders, many of whom were frustrated with Scott for running up so much debt.

Some lenders have also been banging heads with Centro over how much the company actually owes. Earlier this week, one of Centro's creditors claims it has defaulted on $450 million of private paper placements in the U.S., thereby increasing its outstanding debt. Centro has refuted the claim. Centro's complex management structure is also part of the problem. Centro owns its properties through a two-tiered ownership structure where Centro owns 50 percent of several diversified funds which in turn own 50 percent of ownership funds which in turn own underlying assets. It carries debt at each level of these three levels that needs to be paid down or refinance this year.

"The appointment of Rufrano was critical for the Board in order to allow them to release Scott and bring in someone somewhat removed from the creation of the Centro capital structure," wrote Citi analyst Peter Cashmore, in a research note yesterday. "The removal of the former CEO gives the lenders some comfort that some level of dispassionate analysis will be brought to the table as [they] work with the new CEO and the Board as to the options available."

With Scott out of the picture, Centro must feel that lenders will be more willing to give in, notes Cashmore. In addition, according to says Rich Moore, an analyst with RBC Capital Markets, Rufrano's familiarity with the U.S. real estate market is seen as an added incentive. If Centro fails to sort out its financing problems and can't get a buyer willing to take it wholesale, Rufrano will try to sell the U.S. assets piecemeal.

Centro declined to comment.

Facing serious challenges in refinancing the billions of dollars in debt it took on to fund acquisitions in the U.S. and Australia, Centro put itself up for sale two weeks ago. Since then, Centro says, it has received interest from several prominent real estate operators including the Westfield Group, the Blackstone Group and Morgan Stanley.

Centro's options include the sale of its more than 700 U.S. assets. However, given the current market environment, that could take as much as eight months, Moore says.

"They are in a bit of a pickle here--they have to raise the money to cover some of their debt, but I don't know how quickly they could do it," says Moore.

The announcement sent Centro stock plunging another 30 percent on Tuesday, to a market cap of A$502 million. Before Centro's troubles became public in December, the company had been worth A$4.8 billion.

Scott, who has headed Centro Properties Group since 2005, will get a $3 million severance package and offer his consultative services until March 31. Rufrano will receive an annual salary of $1.2 million and a potential short-term incentive of up to 150 percent of his salary.

--Elaine Misonzhnik
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