GPT Group reduces stake in two retail assets

GPT GROUP has moved to streamline its investments and asset base with the sale of a half interest in two retail assets for $551.2 million to the GPT Wholesale Shopping Centre Fund.

By InvestSMART · 27 Jun 2012

By InvestSMART ·
27 Jun 2012

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GPT GROUP has moved to streamline its investments and asset base with the sale of a half interest in two retail assets for $551.2 million to the GPT Wholesale Shopping Centre Fund.

Although it is an internal sale, GPT has said that over time it will reduce its stake in the wholesale funds from the current level of 20 per cent, allowing for a possible float in the medium term.

GPT will also contribute $100 million to a capital raising by the shopping centre fund, which will be launched next month.

GPT can use the cash raised through the sale to lower its gearing and for other developments.

The deals come a day after GPT said it had withdrawn its half share of the $700 million MLC Centre from the market. The property's joint owner Queensland Investment Corp will continue to market its share.

The GPT chief executive, Michael Cameron, who is to host an investor day today, said the sales to the wholesale fund were part of the group's strategy to actively manage the portfolio and continually seek opportunities to optimise returns to securityholders.

He said potential uses of the capital raised from the sales included selective acquisitions and developments in logistics and business park assets in line with his strategy to increase GPT's exposure to the industrial sector.

But he added that the sale was not a reflection of the challenging conditions in the retail sector; nor was GPT intending to quit the business.

"We continue to believe in the future of retail as a strong investment class. After the sale of GPT's stakes in Casuarina and Woden, retail remains an important focus of our portfolio strategy," he said.

Simon Wheatley, a senior REIT analyst at Goldman Sachs, said the asset sales represented fair value given they were being transacted at December 2011 book value plus any incremental capital expenditure spent on the centres.

"Post GPT's commitment to GWSCF's capital raising, the net proceeds from the asset sales are about $451.2 million," he said.

"The two key benefits of this return on cash are lower gearing and a slight positive to return on capital employed given the increased fund stakes, and in turn, future funds management, property management and development management fees."

He said GPT was expected to also use the cash to reinvest in development works, industrial property acquisitions, as well as accelerate its continuing share buy-back program.

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Frequently Asked Questions about this Article…

What did GPT Group sell and who bought the retail assets?

GPT Group sold a half interest in two retail assets (Casuarina and Woden) to the GPT Wholesale Shopping Centre Fund. The transaction price was reported as $551.2 million, and after GPT’s commitment to the fund’s capital raising the net proceeds from the asset sales were cited at about $451.2 million.

Why did GPT Group sell part of its retail assets?

GPT said the sales were part of a strategy to streamline its investments and actively manage the portfolio to optimise returns for securityholders. The capital from the sales can be used to lower gearing and to pursue selective acquisitions and developments, especially as GPT increases exposure to logistics and business park (industrial) assets.

How will GPT Group use the cash raised from the asset sales?

GPT plans to use the cash to lower its gearing, reinvest in development works, fund industrial property acquisitions and other developments, and potentially accelerate its ongoing share buy‑back program. The group also committed $100 million to the wholesale shopping centre fund’s capital raising.

Does the sale mean GPT is exiting the retail sector?

No. GPT’s CEO Michael Cameron said the sale is not a reflection of abandoning retail. He stated GPT continues to believe in retail as a strong investment class and that retail remains an important focus of the group’s portfolio strategy despite the asset sales.

What is GPT’s relationship with the GPT Wholesale Shopping Centre Fund (GWSCF) after the deal?

GPT sold the assets to the fund and will over time reduce its stake in the wholesale funds from the current 20% level, which could allow for a possible medium‑term float. GPT is also participating in the fund’s capital raising with a $100 million contribution.

How did analysts react to the sale price for the retail assets?

Simon Wheatley, a senior REIT analyst at Goldman Sachs, said the asset sales represented fair value because they were transacted at December 2011 book value plus any incremental capital expenditure spent on the centres. He highlighted benefits including lower gearing and a modest positive to return on capital employed.

What happened to GPT’s share of the MLC Centre?

GPT withdrew its half share of the $700 million MLC Centre from the market. The property’s joint owner, Queensland Investment Corporation (QIC), will continue to market its share.

What are the likely implications of the asset sales for everyday investors in GPT Group?

For investors, the immediate implications are potentially lower gearing for GPT and a modest positive impact on return on capital employed. The sales free up cash for reinvestment in industrial assets and development work, and may support GPT’s fee income via increased fund stakes and management opportunities. GPT also signalled it may accelerate its share buy‑back, which is relevant to shareholders watching capital returns.