GPT bid may spark action

GPT Group will need to pay more than $3.1 billion to secure the office and industrial assets at Australand, some of which will have to come from tapping shareholders for cash.

By InvestSMART · 12 Dec 2012

By InvestSMART ·
12 Dec 2012

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GPT Group will need to pay more than $3.1 billion to secure the office and industrial assets at Australand, some of which will have to come from tapping shareholders for cash.

According to analysts, if an offer is made, the real estate investment trust (REIT) sector is in for a renewed round of capital raisings in early 2013. This comes as some are still trading at a discount to their net tangible assets.

Investment managers have said they plan to increase their allocation to the REIT sector next year as returns are tipped to be higher than official interest rates. There is also the weight of money that is coming from compulsory superannuation, which is now heading back into property for its safe characteristics.

Aside from a forecast new round of mergers and acquisitions, the REIT sector will see a shake-up in strategies as new chief executives take over at Stockland and Mirvac. Both groups could look at becoming engaged in a new round of takeovers in the sector.

Deutsche Bank's Jason Wheate said even in the absence of a transaction materialising from GPT, the indicative offer will likely promote increased interest from potential bidders.

JPMorgan's Rob Stanton says an offer from GPT would need to be above $3.1 billion in order to impress Australand's main shareholder, Capitaland. That could include as much as $800 million in an equity issue.

Another broker speculated that Mirvac could take the remaining residential assets and merge with Australand, while DEXUS could make a counter offer for the office and industrial assets.

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Frequently Asked Questions about this Article…

What would GPT Group need to pay to secure Australand’s office and industrial assets?

Analysts quoted in the article say GPT Group would need to pay more than $3.1 billion to secure Australand’s office and industrial assets. Brokers also note that part of that price could require GPT to tap shareholders for cash, for example through an equity raising.

Could GPT’s offer include an equity issue, and how large might it be?

Yes. JPMorgan’s commentary in the article suggests a competitive GPT offer above $3.1 billion could include as much as $800 million in an equity issue to help fund the transaction and win support from Australand’s major shareholder.

How might a GPT bid affect capital raisings across the REIT sector?

Analysts expect a renewed round of capital raisings in the REIT sector in early 2013 if an offer proceeds, because large transactions like a GPT bid often require acquirers to raise fresh equity and because some REITs are still trading at discounts to their net tangible assets.

What does the article say about takeover interest from other REITs like Mirvac or DEXUS?

The article notes broker speculation that Mirvac could take Australand’s remaining residential assets and merge with it, while DEXUS could make a counter-offer for the office and industrial assets — indicating potential competing bids within the sector.

How could a GPT indicative offer influence other potential bidders even if no deal is completed?

Deutsche Bank’s Jason Wheate is quoted saying that even an indicative GPT offer that doesn’t result in a transaction would likely stimulate increased interest from other potential bidders, raising M&A activity and strategic review within the REIT sector.

What sector-wide changes are expected beyond takeover activity?

The article highlights an expected shake-up in strategies as new CEOs take over at Stockland and Mirvac. Both groups could become active in a new round of takeovers, and fund managers plan to increase allocations to REITs as returns are tipped to exceed official interest rates.

What does the article say about investor demand for property from compulsory superannuation?

The article states there is a 'weight of money' from compulsory superannuation heading back into property because of its perceived safety, which is expected to support demand for REITs alongside higher expected returns versus official interest rates.

What should everyday investors know about REIT valuations mentioned in the article?

The piece notes that some REITs are still trading at a discount to their net tangible assets (NTA). That can present opportunities but also means potential equity raisings or takeover bids could alter holdings and valuations, so investors should monitor corporate activity and potential dilution.