Lesson from Centro Properties: Where a Company Does Business Is Paramount

by: Felix Salmon

Foreign stocks are becoming increasingly popular among retail investors, for good reason, as the dollar continues to weaken. After all, if the U.S. dollar slumps against the Australian dollar, say, then a stock which goes nowhere in Aussie-dollar terms can still do very well from the point of view of a U.S. investor.

But it's worth remembering, as the case of Centro exemplifies this morning, that the key question is not where a company is located, or what currency its stock is denominated in: the key question is rather where a company does business. Centro is an Australian company, but its shares fell 76% yesterday as a result of its U.S. shopping-center liabilities. Here's Andrew Harrison in the WSJ:

Centro Properties -- which after an aggressive acquisition spree is the fifth-largest mall owner in the U.S., where about 65% of its assets are located -- said it will curb its growth plans there and may sell some U.S. assets...
"The conditions being experienced around the world in credit and debt markets have made it difficult to refinance," Chief Executive Andrew Scott told reporters in a conference call. The US$80 billion-a-month commercial mortgage-backed securities market has "effectively closed," Mr. Scott said.

Mish pulls no punches this morning: "kiss this company goodbye," he writes. If the CMBS market remains closed, it's certainly hard to see how Centro can continue as a going concern: it's managed to push off the day of reckoning until February 15 by tapping the expensive bank-debt market, but after that things look grim. As Jesse Eisinger says in the latest issue of Portfolio, the CMBS market looks as though it's going to get much worse before it gets any better.