GPT announces capital raising
GPT Group (ASX: GPT) has announced an equity raising to retire some expensive Exchangeable Securities issued during the GFC.
GPT Group (ASX: GPT) has announced an equity raising to retire some expensive Exchangeable Securities issued during the GFC. GPT will raise $325m from institutional investors at $4.23 per security, a 3% discount to today's closing price. Eligible securityholders can also subscribe for up to $15,000 worth of securities at the same price under a security purchase plan capped at $50m.
Although we're expecting interest rates to fall further, which could increase the already high valuations of steady income stocks like GPT, we're not interested in the capital raising as a long term investment. The $4.23 sticker price is pitched at a 7% premium to GPT's net tangible assets and the 5% forecast yield doesn't offer a margin of safety if occupancy rates or rents fall, or interest rates increase, not that that's likely in the short term.
Commercial property values are also high by historical standards. As chief executive of Cromwell Property Group (ASX: CMW) Paul Weightman warned last year, 'Sometimes the herd isn't right and we think we are entering another one of those periods. If it plays out like 1988, you will see prices bid up to the wazoo and a complete flop in property values.' (see A bubble in A-REITs?).
Perhaps we're not at wazoo valuations just yet, but we want to make sure we avoid the flop.
To see if you can make a quick profit from the offer even if you don't want to increase your stake see Your guide to retail share offers.