Federation Centres to Start Issuing Debt in Europe, Asia

Federation Centres, the shopping mall operator formerly known as Centro Retail Australia, plans to issue medium-term notes overseas for the first time to extend the tenor of its debt.

The company will turn to debt markets in Europe, North America and Asia to diversify away from Australian bank loans, Chief Executive Officer Steven Sewell said in a telephone interview from Melbourne. Federation Centers today reported A$212.7 million ($196 million) in net income in the year to June 30, compared with a loss of A$222.9 million a year earlier.

The Melbourne-based company’s sale of stakes in its malls in the past year has helped cut debt as a proportion of assets to 18 percent of assets as of July 31, from about 30 percent as of Dec. 31, the company said in its results statement today. With a target range for gearing as high as 35 percent, the company can borrow to fund its A$581 million share of planned redevelopments without raising equity, Sewell said today.

“We’re looking at issuing medium-term notes or bonds in particular offshore markets of Europe, North America, Canada, and up into Asia, that have a maturity of 7, 10, 12, even potentially 15 years,” Sewell said. “We’re looking at getting in front of investors after this result and as the commercial attractiveness of those markets opens up, we’ll be able to strike.”

Federation Centres shares were unchanged at A$2.22 at the close of trading in Sydney. They’ve declined 2.2 percent this year, compared with 2.9 percent advance in the S&P/ASX 200 A-REIT index.

Credit Rating

Federation Centres has a credit rating of BBB+ from Standard and Poor’s, and its bank debt is rated A-, the company said today. Issuing medium-term notes overseas would allow the mall operator to extend its average debt maturity to about seven years from the current 3.7 years, Sewell said today.

The company today reported underlying earnings of A$224.4 million, compared with A$123.2 million a year earlier and slightly above a forecast of A$223 million, according to the median estimate of 11 analysts surveyed by Bloomberg.

Federation Centres’ full-year dividend will be 14.1 cents, the company said today. Earnings per share in the year to June 30, 2014, will be between 16.5 Australian cents and 16.8 cents, up from 15.8 cents reported today, it said.

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