GPT could use $2.5b firepower on new office fund
At the group's half-year result on Monday, the directors said while they did not have a specific target, having walked away from Australand earlier this year, the balance sheet had the firepower to participate in any potential takeover activity.
CLSA analyst John Kim said GPT could be looking at assets to seed a new suburban office fund.
"While GPT passed on an Australand bid, there is little question in our mind that acquisitions are in store," Mr Kim said.
"We believe GPT has one of the lowest weighted average cost of capital at 6.7 per cent and balance sheet gearing levels in the Australian real estate investment trust industry of 19.9 per cent.
"Additionally, it has size, and funding partners, bringing its total debt-funded investment capacity to $2.5 billion. We place a low probability on a Commonwealth Property Office Fund acquisition, but do believe it is looking for product for a new suburban office fund."
At the half year investor briefing GPT's chief executive Michael Cameron said the group had a "fortress" balance sheet with "plenty of capacity".
"That's [the balance sheet] not going to be an issue for us to be ready to pounce on any opportunities," Mr Cameron said.
"But we're not focused on getting bigger and we're not focused on borrowing money at 5 per cent and buying assets at 7 per cent for the sake of earnings accretion."
Mr Cameron said the directors would look at individual opportunities and individual states in Australia, and apply that discipline, "very very tightly".
Frequently Asked Questions about this Article…
The article says GPT Group has up to $2.5 billion of debt-funded investment capacity (including funding partners). For everyday investors, that means GPT has meaningful firepower to pursue acquisitions or seed new property funds if attractive opportunities arise, while its management says the balance sheet won’t be a constraint.
GPT previously walked away from an Australand bid earlier this year, and the directors said they don’t have a specific takeover target. Analysts and management expect acquisitions are possible given the balance sheet strength, but GPT did not confirm any active bid for Australand or other named groups.
CLSA analyst John Kim suggested GPT could be seeking assets to seed a new suburban office fund. The combination of GPT’s size, funding partners and balance sheet capacity (the reported $2.5 billion) makes it plausible the group is looking for product suitable for a suburban office vehicle.
At the half-year briefing CEO Michael Cameron described GPT’s balance sheet as a “fortress” with “plenty of capacity.” The article cites a CLSA view that GPT has one of the lowest weighted average costs of capital at about 6.7% and industry-leading balance sheet gearing of roughly 19.9%.
According to CEO Michael Cameron, GPT is not focused on borrowing at low rates just to buy assets for the sake of earnings accretion (for example borrowing at 5% to buy assets yielding 7%). Management says they will apply discipline and evaluate individual opportunities carefully.
The article indicates GPT could participate in takeover activity or buy assets to seed new funds, with analysts flagging suburban office assets as a likely target. It also notes a low probability (per CLSA) of a Commonwealth Property Office Fund acquisition, but no specific deal was confirmed.
The article states that GPT’s size plus funding partners bring its total debt-funded investment capacity to $2.5 billion. That means GPT can leverage external funding relationships to increase the amount of capital available for acquisitions or new fund seed investments.
Investors should watch GPT’s investor briefings and acquisition announcements for signs of deal activity. The article notes management will assess opportunities on an individual, state-by-state basis and that any moves will be weighed carefully against balance-sheet discipline rather than pursued solely for growth.
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