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.
Frequently Asked Questions about this Article…
What did GPT propose for Australand and which assets are included in the offer?
GPT launched an indicative and speculative approach for Australand’s office and industrial "crown jewels" — a portfolio reported at about $2.75 billion. That includes Australand’s $2.3 billion investment portfolio of roughly 70 assets (eg. Freshwater Place, Southbank and King Street Wharf) plus other office and industrial assets valued around $400 million.
How would a GPT offer affect Australand’s business and revenue mix?
The assets targeted by GPT generate up to about 70% of Australand’s revenue. If those investment-grade office and industrial properties were sold, Australand would be left mainly with its residential assets — exposing the company more to a tough housing market and reducing its commercial property income.
What should Australand shareholders do now after the indicative approach?
Australand’s directors advised shareholders to take no action until a formal offer is made. That means holding off on selling or making decisions until GPT (or any suitor) lodges a formal, binding proposal and full details are available.
How did the market react to the news and how does the share price compare to net tangible asset value?
Australand’s securities rose about 6.3% to $3.21 on the news, but they remained below the company’s reported net tangible asset (NTA) value at June 30, which was $3.46 per share, according to the article.
What form might a GPT bid take and are any Australand assets still under development?
Analysts expected any formal GPT offer could be a hybrid of debt and equity rather than all-cash. The article also notes some Australand assets are under development, including 357 Collins Street in Melbourne and 1F Homebush Bay Drive in North Ryde.
Why are REITs like GPT and others likely to pursue large portfolio acquisitions now?
Commentators in the article pointed to a shortage of investment-grade assets and relatively low costs of debt as key drivers. Buying whole portfolios lets REITs rapidly boost scale, then divest non-core pieces — a faster route than waiting for new greenfield projects, especially with strong competition from local and overseas investors.
What did analysts say about Australand’s near-term earnings and guidance?
CLSA’s note cited in the article said 2012 earnings were effectively locked in with a forecast of about 3–4% growth and maintained a $3.15 price target. Australand had reaffirmed a full-year distribution of 21.5 (as reported) but warned that guidance for the 2013 financial year would likely be vague until later in the year.
Who are the key people and firms mentioned in the article discussing the approach and market outlook?
The article highlights GPT’s new head of investments, Carmel Hourigan, as leading the tilt for Australand’s investment portfolio. Industry commentary came from Andrew Smith, a director at Evergreen Capital, and John Kim of CLSA Asia Pacific Markets, who provided analyst views on strategy and forecasts.
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