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JONES Lang LaSalle, the second-biggest publicly traded commercial property broker, increased its profit in the third quarter as the company cut expenses.

The Chicago-based company reported a rise in net income to $US19.8 million, or US46c a share, from $US15m, or US43c, a year earlier.

"We are pleased with our performance during the third quarter, particularly in our annuity businesses, and with the results of our continued focus on cost control," chief executive Colin Dyer said. "While real estate fundamentals remain generally weak, we see initial signs of recovery in some markets and industry sectors."

The group said earnings at its Australian business continued to improve, with the third quarter for 2009 tracking above last year’s levels.

The company’s Australian chief executive, Stephen Conry, said the group’s result each quarter for the year was encouraging, with the business maintaining slightly higher revenue and profit compared with last year. "Based on our earnings results to date, we are shaping up to achieve a strong finish to the year," he said.

Bloomberg

AUSTRALIA’S house prices spiked in the September quarter with a 3.7 per cent jump — the fastest quarterly increase since 2003, according to residential research group Australian Property Monitors.

In its latest report, published yesterday, APM said Melbourne led the country with a 6.1 per cent increase over the June quarter.

The average house price in Melbourne was $487,249, compared with $437,560 in September last year.

The city’s average house price rose 11.4 per cent.

APM said Hobart scored the second-highest rise, with 5.4 per cent for the quarter, followed by Canberra with 4.8 per cent and Sydney with 3.6 per cent.

The rise in national house prices was led by "explosive" growth in the more expensive suburbs, which had started in capital cities and spread to the rest of the country, APM economist Matthew Bell said.

Prices in Sydney’s eastern suburbs and lower north shore had been rising since June.

House prices in some expensive suburbs, such as Point Piper and Bronte in Sydney, had taken the hardest hits, falling by up to 30 per cent since 2007, he said.

However, it was uncertain how much longer the recovery would last because the market was not underpinned by first-home buyers. The rise in prices in the first-home segment of the market had started to slow in the September quarter.

The anticipated slowdown in the first-time buyer market, since the decrease in first-home buyers grants in September, and rising mortgage rate had been offset by investors, Mr Bell said.

Strong rental yields and the prospect of future capital gains were enticing investors to enter the market in the second half of this year, continuing into early next year.

APM figures showed that the national average unit price in Australia rose 3.4 per cent to $367,727. Unit prices were expected to rise by 7.4per cent over the year.

Another residential researcher, Residex, earlier this week put Sydney’s median house price at $610,500 in September, an $11,000 rise during the month.

MULTIPLEX Prime Property Fund’s manager, Brookfield Multiplex, has not ruled out selling the fund’s assets in the long term or delisting the entity.

This approach is in response to a Takeovers Panel ruling yesterday that allowed Brookfield Multiplex to proceed with its $50million equity raising.

That move may put an end to a hostile takeover offer for the fund by a consortium backed by Grocon.

Yesterday, the fund’s non-executive chairman Peter Morris said the strategy for MPPF would be settled once the entitlement offer had been achieved.

"The assets we have in the fund — there are boundless opportunities in the future — it is just a question of which one is best," he said.

Asked if any of the fund’s buildings were for sale, Mr Morris said: "Anything is for sale at a price, but there is no offer on the table."

Delisting the fund was not an immediate option, he said, but nothing could be ruled out in the future.

The fund owns four office towers in Sydney and Melbourne and is struggling under a mountain of debt, with a waiver on a loan covenant breach expiring next month.

The Takeovers Panel’s decision yesterday is the latest development in a prolonged saga surrounding MPPF.

The Takeovers Panel said it found that the $50m capital raising proposed by Brookfield Multiplex was undertaken in acceptable circumstances.

Shareholder Nicholas Bolton’s company, Australian Style Investments, earlier argued the Brookfield Multiplex proposal to raise capital should not proceed.

Mr Bolton has maintained that the highly dilutive offer by Brookfield Multiplex was not in the best interests of shareholders and was a "takeover by stealth".

The panel found in favour of Brookfield Multiplex’s claim because the fund had breached a loan covenant and a temporary waiver from lenders expired on November 16 and said there was a clear and pressing need for funding. "This was a very significant factor for accepting the undertaking," the panel said. A Grocon spokesperson said other options were now being investigated.

Grocon and US private equity player Oaktree have made a $109m play for control of MPPF and it also approached the Takeovers Panel this month to scupper Brookfield Multiplex’s $50m rights issue.

The Takeovers Panel considered both applications together when making yesterday’s decision.

Mr Bolton owns more than 19per cent of the fund and could walk away from a $22m second instalment liability and make a $1m profit from his stake if Grocon gained control.

In the BrisConnections tussle earlier this year, Mr Bolton sold his interest for $4.5m, scuttled his own wind-up motion and walked away from a $77m second-instalment liability.

Investors bought into MPPF at 60c a security when the fund was launched in September 2006 and are obliged to pay a second 40c instalment in June 2011.

ING Industrial Fund, owner of industrial properties in Australia, Canada and Europe, is seeking to raise $700 million to repay debt and resume development activities.

In a 1-for-1 non renounceable entitlement offer, IIF will raise $544 million from existing unitholders and will raise another $156m from an institutional placement.

The new units are priced at 48c each — offering investors a big 20 per cent discount to yesterday’s closing price of 60c each.

IIF chief executive Paul Toussaint said today that the trust would reduce its borrowings in Australia from $1.6 billion to $900m, and its gearing ration would fall from 53.9 per cent to 33.5 per cent.

The trust had renegotiated with a consortium of 12 banks to extend the $1.6bn syndicated facility to December 31, 2011, giving it time to do a capital raising without having to undertake a fire sale of its assets.

And to preserve capital, IIF agreed to suspend payment of its distribution.

Following the capital raising, Mr Toussaint said the trust would be able to resume paying distributions to unitholders from January 2010.

He forecast net operating income of $108.1m in the calendar year 2010, or 4.17c per security.

He said the trust would distribute 77 per cent of the estimated net operating income.
Post-raising the trust’s net tangible asset will be 67c per unit. The trust owns assets valued at around $3bn.

IIF is in a two-day trading halt until the completion of the placement and institutional entitlement, which are fully underwritten, tomorrow afternoon.

TEN key regional centres in Australia are positioned to experience booming property prices as the economy recovers, a real estate researcher says.

Real estate forecaster Terry Ryder has tipped the West Australian resource boom towns of Port Hedland and Karratha to again grow strongly, while agriculture and tourism are tipped to benefit Orange in NSW and the northwest of that state.

In his National Top 10 Boom Town Hotspots report, Mr Ryder recommends investing in the cities of Bunbury in WA and Newcastle in NSW.

The remaining towns to make it into the list include Ceduna in South Australia, Gladstone in Queensland, Geraldton, Port Hedland and Karratha in WA, Portland in Victoria, and Orange and the northwest of NSW.

Mr Ryder also warned investors to shy away from buying in "pure-mining towns".

He said investors could benefit from Australia’s new wave of mining by focusing on strategically located regional centres that were set to benefit from major new projects.

"While investors who get in early can make big capital gains, most mining towns exist in a bubble, which can burst if demand for resources drops, the local mine closes or housing demand falls away after construction of a major project is completed," Mr Ryder said in a statement.

"Property buyers looking for boom-town investments are better served looking for nearby regional centres that will enjoy the economic surge of major new projects, but are not solely dependent on it for their prosperity."

Mr Ryder said all the locations on the list had exposure to the mining and resources sector while being based on well-rounded regional economies.

He identified the desalination plant in Bunbury, a port upgrade in Ceduna, port and rail links in Geraldton, industry and tourism in Gladstone and port and rail links in Newcastle as major factors in their inclusion in the list.

THE Australian Taxation Office is investigating a Chinese national over an alleged $75 million-plus GST fraud relating to numerous business developments in NSW, including a luxury Hunter Valley resort.

Criminal charges could also flow from the investigation into Li Zhang, 46, and the High Trade group of companies, according to senior investigators at the ATO.

But the probe has stalled due to recent action by Mr Zhang in the Federal Court, where he is challenging the manner in which five raids were conducted in April this year and says the search warrants used were "bad on their face".

Court documents allegedly reveal the "sham" transactions related to GST credits claimed. It is alleged that High Trade operated multiple companies "supplying and providing various building and construction services controlled by the same group of people but using either fictitious identities or the identities of employees to conceal the common ownership or control of the companies".

Invoices were inflated, or no goods or services were provided, according to affidavits filed by tax investigators. High Trade group companies then claimed the GST input credits on their Business Activity Statements while the "suppliers" went into liquidation without paying GST to the tax office.

The tax office has also traced bank accounts and says payments did not go where they were meant to. It says it has identified a series of "round robin" transactions.

A director in the tax office’s serious non-compliance (SNC) division, Paul Anderson, said documents seized in the April raids were "crucial" to the ongoing investigation.

"I consider this investigation to be the most important investigation being undertaken by the SNC Operations," Mr Anderson said in an affidavit.

"The investigation can’t properly continue until the investigators are given access to the … material seized."

Mr Anderson also said he was concerned that "records may be destroyed or lost" and that "one of the suspects has left the country and not returned".

A senior investigator in the tax office, Alan Crowe, said he believed 38 of the 125-odd companies in the High Trade group were involved in the alleged offences.

One of the developments under scrutiny is the luxury Crown Plaza Hunter Valley Resort, for which the ATO has issued a revised $29 million tax bill.

A further $8m tax bill was issued to property development company Pakshun, formerly High Trade Company Pty Ltd.

Both assessments are being disputed, with the companies denying any "sham" transaction and saying the tax office has incorrectly calculated GST.

It was "no secret" the companies had loans. They say they have been denied "natural justice" by the tax office, which is acting in an "arbitrary" and "capricious" way.

Last week the Federal Court ruled the tax office was not allowed to use the seized documents until a further hearing took place regarding the search warrants. Justice Geoffrey Flick said "a serious question exists as to whether documents may have been seized without proper regard to the terms of the warrants themselves".

High Trade-related building sites have been raided by immigration authorities at least six times in relation to Chinese nationals allegedly working at building sites without work visas, according to recent reports.

The company has not been prosecuted in relation to those raids.

CONCERNS about a growing bubble in Hong Kong’s high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40 per cent, from 30 per cent.

Bubble risks: High rise buildings stand in the central district of Hong Kong. Picture: Bloomberg

ANOTHER strong weekend for property auctions has intensified pressure on the Reserve Bank to increase interest rates.

While Melbourne and Sydney sales were slightly down on the previous weekend, the national clearance rate average is expected to remain above 70 per cent for the 16th consecutive week.

Saturday’s fall had been expected because the 1605 properties listed to sell under the hammer was the largest total for the year.

But in Melbourne, where 950 homes were listed for sale compared with only 681 the previous Saturday, clearances fell by only 1.5 points from 76.4 per cent to 74.9 per cent.

Sydney, which had 355 sales listed compared with 295 a week earlier, declined from 64.7 per cent to 61.1 per cent.

In Melbourne, agents reported one of their best weekends of sales since the last peak of the market in 2007.

"In a word, the weekend has been unbelievable," Hocking Stuart Carnegie director Gary Walton said.

Mr Walton yesterday sold five out of five properties, among them a large art deco home at 5Joyous Gard Court, Murrumbeena, which went for $160,000 above reserve at $1.298 million, with more than 100 people turning out for the auction.

The largest sale in Sydney was for a five-bedroom home at 27-29 Lindsay Street, Burwood, that went for $2.49m.

According to Australian Property Monitors, Adelaide clearances were up slightly from 55.9per cent to 57.1 per cent, while in volatile Brisbane, clearances slumped from 48.6 per cent to 33.3per cent.

The strong showings in Melbourne and Sydney have shortened the odds that the Reserve Bank will increase official rates when it meets on Melbourne Cup day.

Damian Smith, CEO of financial comparison website RateCity, said yesterday that if the RBA opted for only a 25-basis-point increase, it was likely to be the first of eight such rises over the next two years.

Mr Smith said a two-point increase would mean borrowers with an average $300,000 loan would pay an extra $375 per month.

He said a single person with an average $900-per-week income already paid 50 per cent of income on mortgage repayments.

"With 31 per cent considered to be the mortgage stress line, many more Australians will find themselves in strife," Mr Smith said.

Two weeks ago, the four big banks — ANZ, Commonwealth, Westpac and National Australia Bank — lifted standard variable rates by a quarter of a point to an average of 6.03 per cent.

Other lenders, including St George Bank, HSBC, ING Direct and RAMS Home Loans, upped their rates last week.

Mr Smith said fixed-rate home loan rates had also increased, with the new benchmark three-year rate at 7.19 per cent and five years at 7.85 per cent.

THE minutes from Centro Properties Group’s audit committee board meeting on September 5, 2007, are an unintentional masterpiece in understatement.

Those present listened as Centro finance accounting manager Paul Belcher told his masters there had been some "minor changes" to the financial statements that had been circulated among directors.

Full copies of the latest draft financial statements were now ready for review, he told directors including chief executive Andrew Scott.

Non-executive Sam Kavourakis appeared cautious.

According to the minutes, revealed this week in court documents, he reckoned the audit committee should get another couple of days to review the new statements.

But Scott voiced the "practical consequences" of delay, as the final accounts needed to be approved that day to be included in the Centro annual report.

In any case, Stephen Cougle, a partner with auditor PricewaterhouseCoopers, gave "comfort" that his firm had signed off the full accounts.

Reassured, the committee recommended the statements to the board, which duly signed off the final 2006-07 accounts.

But what we now know is that those "minor" changes involved the definition of more than $1billion in debt and, within months, would help bring to its knees one of Australia’s fastest growing blue-chip companies.

More than two years later, the changes are also at the centre of the biggest civil case launched by the Australian Securities and Investments Commission as it probes the causes and casualties of the global financial crisis.

The outcome will determine whether eight former and current Centro directors and executives are banned as directors and face heavy fines, as ASIC would like. Centro and those named are defending the action.

It will provide clarity on exactly how much directors, particularly non-executives, can rely on information they receive from executives, and their duty of care to companies and their shareholders.

Even as the subprime crisis was beginning to rattle through financial markets in September 2007, Centro remained what many investors considered a rock-solid blue-chip.

Its market capitalisation had recently peaked above $8bn, it had 800 shopping centres around the world after a two-year debt-funded buying spree, and its pedigreed board had attracted leaders of the retail and business world.

At the head of the table during the crucial boardroom meeting that year would have been chairman Brian Healey, who had been a director of listed companies such as Orica, Foster’s, Biota and Incitec Pivot. 

Next to him would have been the Centro mastermind, Scott, a former chartered accountant and Coles Myer exclusive who pocketed $3.6m in annual pay that year.

Also among them was director Peter Wilkinson, who was the former chief executive of David Jones and Just Jeans, and Kavourakis, a Harvard graduate and the former managing director of National Mutual Funds Management.

Jim Hall, who is still on the board, was a director of ConnectEast, Alesco and the former chief financial officer of Orica. Paul Cooper, who is now chairman, is a former solicitor who had been a director of Axa Asia Pacific. Graham Goldie was a former Target and Myer senior executive.

All seven — along with former chief financial officer Romano Nenna — are now in ASIC’s sights over alleged "material misstatements" in the 2006-07 accounts of Centro and its associate Centro Retail Trust.

At the heart of ASIC’s claim is that about $2.1bn worth of debt on the two groups’ balance sheets was incorrectly identified as "non-current" — or not repayable for more than 12 months — when, in fact, it was due in the coming year.

ASIC’s statement of claim, lodged this week, reveals the company had been paying attention to its $4bn-plus in debt, and particularly the maturity of its debt portfolio, for months leading up to the September meetings.

It alleges the board was repeatedly given documents showing the maturity of its debt.

In fact, just days before the 2006-07 accounts were signed the directors were told that $2.14bn of Centro’s debts were classified as "immediate short term" — a maturity of less than six months.

ASIC’s claim says that in May, directors were given a document conceding that Centro’s "rapid growth through significant acquisitions during the 2007 financial year had been substantially debt-funded and had created some short-term challenges in terms of maintaining (Centro’s) liquidity reserve".

Centro had spent $US8.7bn since April 2005 to become the fifth-biggest owner of US shopping centres.

It had more than 800 centres globally — 124 across Australia and New Zealand and 682 in the US. Under the Centro model, the two listed components of the company bought shopping centres and then sold them down to syndicates, predominantly comprising 20,000 "mum and dad" retail investors.

Unfortunately for the debt-laden Centro, the value of its centres was tumbling as US property prices fell and, concurrently, the cost of US bank debt soared on the back of the fallout from the subprime lending crisis. With the assets falling in value, banks would have told Centro to sell down the properties or else they would need to refinance.

At the August board meeting, Nenna ran through a PowerPoint presentation on "emerging disturbances in international capital markets and their effect on the Centro group". The presentation noted that "short-term liquidity" was the group’s "greatest challenge". But management was confident its relationship with its banks was strong enough to ensure existing debt facilities could be extended until markets recovered. In early August, Centro and Centro Retail lodged their preliminary financial accounts with the securities exchange. Centro said it had no current debt — due within 12 months. ASIC argues it should have been $2.6bn. Centro Retail also said it carried no current debt. ASIC argues it should have been $598m.

But sometime between August 9 and August 31, according to ASIC, Belcher identified a $1.1bn loan from JPMorgan to Centro that should have been classified as current. It was, after all, due for repayment on January 4, 2008. This was the "minor change" introduced into the final accounts when they were presented to the audit committee and board in early September.

ASIC claims that number still vastly underestimated the current debt within Centro. Indeed, in mid-February the group reported that the December half accounts would be restated to classify a further $1.5bn of the total debt as current liabilities. From no current debt in August, its short-term liabilities had blown out to $2.6bn, or 72 per cent of the total debt of $3.6bn.

Centro’s rumoured debt problems quickly leaked into the public domain in the closing months of 2007. On December 17, two listed arms of the shopping centre giant emerged from four-day trading halts to announce they had been unable to secure debt funding of $3.9bn.

Centro’s relationships with banks, unnerved by the gathering credit crisis, had not been strong enough. "We never expected nor could we reasonably anticipate that the source of funding that had been historically available to us and many similar companies would shut for business," Scott said in the days that followed.

The prices of both shares went into freefall following the news, with Centro plummeting 76 per cent from $5.70 at resumption of trade to close at $1.36, and Centro Retail crashing 40 per cent to close at 85c. At the depths of its woes last year, Centro shares fetched just 4c — a loss of more than 99 per cent from their peak.

Just over $5bn was wiped from both companies on the first day alone, with the reverberations being felt through all listed property companies. Another $5bn was stripped from Macquarie DDR Trust, Macquarie Office Trust, GPT Group, Westfield Group and Goodman Group.

Justin Blaess, director of real estate for ING, says that in late 2007 debt maturities were not at the top of people’s minds and the global financial crisis had not started in earnest. "There were some cracks on the side — some hedge funds had started to go broke — but it really wasn’t seen as an issue," he says.

In the weeks after Centro’s meltdown, Scott left with a $3m golden handshake. He was followed by Healey about six months later.

Centro is now fending off two major shareholder class actions over the events of 2007. Those cases, one of which was in mediation and both of which could also target PwC, have received a boost with ASIC’s intervention.

ASIC claims that the current and former Centro directors and executives breached their duties to ensure that information contained in financial reports and disclosed to the market was accurate, complied with relevant accounting standards and was not misleading. The regulator claims that the directors — who have yet to file their defences — knew that Centro and its related companies had "very significant" short-term interest-bearing liabilities and should have known they were incorrectly classified.

The watchdog will begin its civil proceedings on November 20 in the Federal Court in what will be the first case brought under laws that require a listed company’s CEO and CFO to sign off on company accounts. It will also be the first major case targeting corporate Australia since the start of the global financial crisis (GFC), although ASIC is still looking into other fallen companies, such as Eddy Groves’ ABC Learning Centres.

Ian Ramsay, the director of the Centre of Corporate Law and Securities Regulation at Melbourne University, says the latest case shows ASIC is "being very active" in pursuing directors over alleged breaches of duty. "It is likely to be the case that in the wash-up of the GFC the regulator will focus on accounts and financial reporting and directors’ duties," he says.

Centro, despite its near-death experience, limps on. Scott was replaced by New Yorker Glenn Rufrano in January last year. Under Rufrano, the company managed to strike a debt-for-equity deal with its 23 financiers that saw them agree to extend $4bn worth of debt, after a string of short-term extensions were granted through the year. In exchange, however, the banks would own 90 per cent of the company.

Rufrano has also announced he will not renew his contract when it expires next year, sending the company on a hunt for a replacement.

It is on these grounds chairman Cooper and Hall maintain it is in the best interest to stay on the board of Centro. Both say they will vigorously defend the claims against them. "A sustainable future for Centro requires stability and certainty," they say.

Originally built as a medieval farmhouse, Knowl Hill House has been much extended and aggrandised over the years into a practical and comfortable country house set well overlooking its grounds and centered around a traditional courtyard.