A stronger Australian dollar saw Centro Properties Group's first half net profit surge to $553 million, but underlying profit plunged 42 per cent and the company will now restructure because of its debt burden.
A continued deterioration in net cash flow, combined with $3.1 billion in debt which must be refinanced by December 2011, meant the company must now restructure, Centro said in statements.
Centro reported a 976 per cent surge in net profit to $553.4 million for the six months to December 31, 2010, compared with a $63,176 loss in the previous corresponding period.
Underlying profit was $48.2 million, 42 per cent lower than a year earlier, but in line with previous guidance provided last December.
Revenue touched $834.5 million, seven per cent lower than the previous corresponding period.
No interim distribution was declared.
Chief executive Robert Tsenin said: "Centro also faces its headstock debt maturity of $3.1 billion in December of this year and therefore must effect a restructure prior to that maturity.
"Recent improvements in property and financial markets have improved the prospects for a restructure, but Centro's capital structure is not sustainable, with $16 billion of debt as at December 31.
"This clearly unsustainable capital structure, combined with our exposure to volatile foreign exchange and variable interest rates, presents us with significant financial and operational challenges," Mr Tsenin said in a statement.
"The need to restructure remains critical," he said in a conference call.
Centro's future was dependent upon the outcome of the company's restructuring, chief financial officer Chris Nunn said.
The company was in compliance with its one banking covenant at December 31, 2010, but its "leverage is unsustainable", he told analysts.
Centro finished the first half with a gearing ratio of 95.9 per cent, down from 98.3 per cent at June 30, 2010.
Two-thirds of Centro's headstock debt is subject to variable interest rates, and a 25 basis point increase in Australian and US interest rates would result in a $5.5 million per annum increase in Centro's interest expense.
Mr Tsenin said the simplification of Centro's corporate structure was essential to effect a recapitalisation of the company, and asset sales was an alternative path. Centro continues to defend class action claims against it, he added.
It would not be appropriate to speculate on the outcome of the restructuring, he said.
Centro's securities were trading steady at 15 cents at 9.35am.