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GPT weighs in with conditional offer for Australand's 'crown jewels'

11 Dec 2012 SYDNEY MORNING HERALD - CAROLYN CUMMINS PROPERTY



GPT has kicked off a fresh round of asset grabs with an indicative and highly speculative offer for Australand Property's "crown jewels" - its $2.75 billion portfolio of office and industrial properties.

These assets generate as much as 70 per cent of Australand's revenue and, if GPT makes a formal offer, Australand will be left with only its residential assets in a tough housing market.

Securities in Australand, which has a December 31 balance date, rose 6.3 per cent yesterday to $3.21, but still at a discount to net tangible asset value at June 30 of $3.46.

Australand's directors advised shareholders to take no action until a formal offer was forthcoming.

It is expected more of these strikes for key property portfolios will dominate corporate activity in the real estate investment trust sector next year.

A director of Evergreen Capital, Andrew Smith, said the lack of supply of investment-grade assets and low cost of debt would see more REITs enter the market as buyers tried to bolster their portfolios.

"In Australia there is a high proportion of investment-grade assets owned by institutions, so the only way for an REIT to quickly boost a portfolio is to acquire them, as it takes too long for greenfield projects," Mr Smith said. "The combination of the low cost of debt and the many competitors in the market, from local and overseas investors, will make it more attractive to buy a whole portfolio and then divest assets that are deemed non-core.

"We expect this will be the driver for activity next year."

Analysts said if GPT were to make an offer it was likely to be a hybrid debt and equity bid. Some of the assets in Australand's investment portfolio are under development, including 357 Collins Street, Melbourne, and 1F Homebush Bay Drive, North Ryde.

GPT's surprise tilt, led by its new head of investments, Carmel Hourigan, is for Australand's investment portfolio, which is valued at $2.3 billion and has 70 assets including Freshwater Place, Southbank, Melbourne, and King Street Wharf, Sydney, pictured.

The offer also includes the rest of Australand's office and industrial assets, valued at $400 million. GPT said the offer was part of its strategy to move to a more balanced sector weighting with an increased exposure to office, logistics and business parks.

In a recent note to clients, John Kim of CLSA Asia Pacific Markets, said Australand continued to invest only in "incremental capital" on industrial development, and that it would be a net seller of commercial assets in the near term.

"While 2012 earnings (3 to 4 per cent growth forecast) is locked in, we believe initial 2013 financial year guidance will be vague until later in the year. Our estimates and $3.15 price target are unchanged," he said.

"Australand recently provided its third quarter, 2012, update and reaffirmed a full-year distribution of 21.5?, but warned that 2013 would be difficult to forecast.