Stockland yields on GPT

After taking into account capital raisings by both groups over the past two years and GPT's share consolidation, on paper Stockland looks to have lost as much as $200 million on its investment.

This comes a week after the group's annual meeting, when Stockland chairman Graham Bradley defended a 20 per cent fall in earnings per security, at the same time as some executives' short-term performance incentives doubled.

In the year to June 30, Stockland's chief executive Matthew Quinn received a 41.7 per cent rise in short-term incentives from $1.24 million to $1.75 million.

Although his base pay has been frozen, his total package for the 2010 year was $4.74 million, up from $3.38 million in the 2009 financial year.

In what was considered a killer blow in November 2008 when the real estate sector was heading into the global financial crisis, Stockland paid an equivalent of $541 million for an initial 12.7 per cent interest in GPT through a share swap and cash deal.

That equated to about $1.07 a share excluding capital raisings, which was close to a third of the formal $3.70 a share it offered for GPT in its failed 2004 takeover offer.

But late yesterday, Stockland ordered broker Deutsche Bank to sell the GPT shares through a book-build process starting at $2.72 a share to institutional investors.

The interest in GPT has long been contentious, with property analysts questioning the wisdom of holding the stake and not launching a full bid, particularly as GPT's price was falling.

As at June 30, Stockland said the overall cost of its stake was equal to $3.80 a share or $877.3 million. But with GPT's shares now trading at $2.81, after its own capital raisings and share consolidation, the market value was $682.8 million, a decline of about $200 million.

Stockland CEO Matthew Quinn has kept the shares in a separate derivative vehicle and has consistently said the stake was a strategic investment.

Shortly after buying into GPT, Mr Quinn also bought a 14.9 per cent interest in FKP for $132 million, now valued at about $118 million.

At the group's 2009-10 annual profit results in August Mr Quinn said he would only contemplate merger and acquisition activity if it secured "high quality assets that fit the three-R [retirement, residential and retail] strategy and enhances security holder returns".

"Strategic stakes provide optionality to achieve this," he told investors. "The GPT exposure is via an efficient off-sheet structure which expires in May 2011."