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GPT's Australand play ups tempo

GPT Group will need to pay more than $3.1 billion to secure the office and industrial assets of Australand, some of which will have to come from tapping shareholders for cash.
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By InvestSMART · 12 Dec 2012
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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 of Australand, some of which will have to come from tapping shareholders for cash.

If an offer is made, analysts said the real estate investment trust sector is in for a renewed round of capital raisings early next year. Some REITs 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 coming from compulsory superannuation, which is now heading back into property because of its safe-haven characteristics.

Aside from a forecast 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. This will lead to renewed interest in these stocks, which have been quiet amid the management transition.

Both groups can look at becoming engaged in a new round of takeovers in the sector.

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

JP Morgan's Rob Stanton said an offer from GPT needs to be more than $3.1 billion to impress Australand's main shareholder, Capitaland. That may include as much as $800 million in an equity issue.

He said the potential acquisition would be a coup for GPT, if it could execute it at a small premium to net tangible assets, driving up to 7 per cent earnings per securities accretion and making strong strategic sense.

He said GPT has solid funding options available.

Other brokers said the move by GPT to go public with its intentions is part of a bigger strategy by the diversified trust.

This may be to mask a full takeover, although it is unlikely GPT wants to buy Australand's residential assets.

"A cleaner outcome for shareholders would be a full cash offer but it is unlikely GPT will 'warehouse' the residential business," Mr Stanton said. "This opens the door for competing or different alternatives, such as a merger of equals with Mirvac, where the valuing of the residential business in isolation would not be required.

"Natural domestic competitors could likely include Mirvac, Lend Lease or DEXUS Property and, from left field, a fund manager/wholesale unlisted combination of Charter Hall or Goodman Group with pension-fund backing."

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

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Frequently Asked Questions about this Article…

The article says GPT Group has signalled interest in Australand's office and industrial assets. Analysts estimate GPT would need to pay more than $3.1 billion to secure those assets, and any move would likely focus on the commercial portfolio rather than Australand's residential business.

Brokers and JPMorgan analysts say an offer would need to be more than $3.1 billion to impress Australand's main shareholder, Capitaland. JPMorgan's Rob Stanton suggested the bid could include as much as an $800 million equity issue on top of cash, so the total capital requirement could be materially higher than $3.1 billion.

According to the article, GPT would likely tap a mix of funding sources. JPMorgan noted GPT has solid funding options and an acquisition may involve a substantial equity raising (the article cited up to $800 million as a possibility), plus other debt or institutional financing rather than relying solely on cash.

Yes. Analysts expect GPT going public with its intentions could trigger renewed interest from other bidders and prompt a fresh round of capital raisings across the REIT sector early next year. Some REITs are still trading below net tangible asset values, so analysts say more capital activity is likely.

The article reports managers plan to lift REIT exposure because returns from property trusts are tipped to be higher than official interest rates. There is also pension-fund (compulsory superannuation) money moving back into property due to its perceived safe-haven characteristics.

Brokers named several potential domestic competitors including Mirvac, Lend Lease and DEXUS Property. They also flagged the possibility of fund-manager or wholesale unlisted combinations involving Charter Hall or Goodman Group backed by pension funds. Any bid would also need to consider Capitaland, Australand's main shareholder.

Analysts suggest GPT is unlikely to keep Australand's residential assets ‘warehoused’ after a deal, so a cleaner outcome would be a cash offer or a carve-up. Scenarios mentioned include Mirvac taking residential assets and merging with Australand, GPT acquiring office and industrial assets, or DEXUS making a counteroffer for the commercial portfolio.

Investors should expect increased M&A activity and potential share-price volatility in REITs, possible equity raisings that could dilute current holders, and renewed interest in stocks with management changes (for example Stockland and Mirvac). Keeping an eye on formal offers, funding plans, and responses from Australand’s major shareholder Capitaland will be important.