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Centro comes good as 'Federation'

After six tough years, Federation Centres, the redesigned Centro Properties, has returned to a credit rating of A- from Standard & Poor's and is talking acquisitions and a simplified structure.

In its report for the first half of the 2008 financial year, the then chief executive Glenn Rufrano spent the time talking about the $14 billion of debt the retail landlord was facing, and said that it was his task to keep the banks from foreclosing the business.

After much pain, legal action and some asset sales, Mr Rufrano was successful.

A year ago, Steven Sewell assumed the chief executive role and today he said the group was on track to report solid earnings for the 2013 full year.

But underpinning the hard work of settling a multibillion-dollar class action, re-organising staffing levels and changing the name to Federation Centre (ASX: FDC), was the business: food-anchored small-to-medium shopping centres.

While the head office was burning the midnight oil to keep debt under control, the malls opened daily as customers bought their food and some discretionary items.


At the group's half-year result on Friday, Mr Sewell said the life-blood of Federation was and always will be food-anchored malls.

For the half, the profit was $115.6 million, which was up from the $22 million reported in the previous corresponding period.

Net income was $115.9 million up from a loss of $100.1 million a year earlier.

An interim distribution of 6.6¢ was declared.

Mr Sewell said the outstanding feature of the results was the credit ratings, which were a vindication of the hard work by the group over the past few years.

"Standard & Poor's has assigned FDC a senior secured bank debt a rating of A- and a corporate credit rating of BBB+. These ratings provide an opportunity to diversify our funding sources via the debt capital markets, subject to suitable market conditions," Mr Sewell said.

"Focusing on being an Australian-based, food-anchored shopping centre landlord, has stood us in good stead.

"We will continue with the strategy of simplifying the structure, development of existing centres as well as looking for joint venture partners for some of the portfolio."

Peter Zuk, an analyst at Goldman Sachs, said Federation's development pipeline is $1.1 billion, to be rolled out over the next five years, with the group's share of the cost about $591 million.

Gearing post-balance-date is 24.4 per cent, which provides scope to debt-fund much of this future pipeline. The down-scaling of the syndicates business is ongoing, and Federation expects by December 2015 to have only five core syndicates with total assets of about $33 million.

"Our earnings estimates and target price are under review," Mr Zuk said.

The analysts at Moelis & Co said Federation had upgraded 2013 earnings per security guidance from 15.3¢ to 15.6¢, to 15.5¢ to 15.75¢.

"We anticipate upgrades to consensus for both 2013 and beyond, and the core earnings of $106.2 million were in line with our estimates," the analysts said.