GPT's hotels portfolio on the block

GPT has moved to shore up its balance sheet with the sale of its hotels division, worth about $900 million, but analysts said this could be a tough ask, given the weak state of the local tourism market, as well as difficulties in borrowing amid the credit crisis.

GPT has moved to shore up its balance sheet with the sale of its hotels division, worth about $900 million, but analysts said this could be a tough ask, given the weak state of the local tourism market, as well as difficulties in borrowing amid the credit crisis.

Hotel statistics throughout Australia show a dramatic decline in occupancy rates by international and domestic tourists. The independent advisory group LandMark White says it is expected that slowing domestic and international economic growth, and rising cost of living pressures, will continue to dampen growth in demand.

GPT's preference is to sell the sites as one portfolio, excluding the Four Points Hotel at Darling Harbour, but it will consider individual offers at a later stage of the divestment process.

The sale has been triggered by the revelation by GPT's chief executive, Nic Lyons, on July 7, when he shocked the market with a 27 per cent downgrade in earnings for the 2007-08 financial year and warned of asset sales. The downgrade was due to the deepening credit crisis, which has increased GPT's borrowings.

Yesterday, as part of the disposal of what it considers non-core assets, the group said it was selling the Ayers Rock Resort, near Alice Springs, and the Voyages Lodges portfolio of eco-resorts. It will sell the Four Points Hotel, the country's largest by number of rooms, as a separate deal.

The key Voyages properties include Bedarra, Lizard and Heron islands in Queensland, Wrotham Park Lodge in North Queensland, Cradle Mountain Lodge in Tasmania and the El Questro Homestead in Western Australia.

At the investor update on July 7, Mr Lyons said the tourism portfolio comprised about 7 per cent of GPT's overall assets. He said the resorts had underperformed in recent years and the group had reduced its guidance on earnings from the tourism assets for 2008 from $57 million to $42 million.

"The strong Australian dollar, higher fuel prices, aviation capacity reductions and weaker consumer confidence continue to impact the Australian tourism market," he said at the time. David Burgess of Credit Suisse said he believed the portfolio would be broken up, but it was a tough sell at book value, given the economic outlook.

Goldman Sachs JB Were said that the sale of the hotel/tourism portfolio would remove a "variable" earnings stream from the group's earnings mix. "The sale of this portfolio would free up group capital to repay debt or pursue other capital initiatives," it said.

"It would suggest a focus on simplifying GPT's business strategy, and a greater focus on its core strategic competencies - possibly a step to 'the GPT of old', that focused on office, retail and industrial property," it said.

"We question if a possible exit from the US retirement business could be the next step in any rationalisation process. Earnings from the hotel/tourism business unit can be variable, as evidenced by the downward revision in operating income guidance for hotel/tourism in GPT's recent market update."


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