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Securities of property trust group, GPT hit their lowest level ever yesterday morning after it slashed its 2008 earnings estimate and distribution by around 27-31%.
GPT’s downgrade, issued before the market opened, saw its securities fall more than 18% at the opening to an all time low of $1.95. They then recovered to trade around $2.10, down 36c or 14.6% on the day. The last time that price was reached was back in 1993. It helped push the market down 1.6% by the close.
The news from GPT continues the downgrades from the property trust sector, especially those that have moved offshore in a major way, like Valad, APN, the various Babcock and Brown groups, Mirvac and others.
It also follows the re-rating of infrastructure stocks like Transurban after its profit and borrowing Mea Culpa last month.
GPT dropped its guidance for full-year operating income to $464 million from $633 million because of what it said was the deterioration in global credit and financial markets.
You could say that the downgrade marks GPT’s acceptance of the new realities of international finance: it’s grim and getting grimmer for companies with a whiff of leverage or looking to sell assets to generate profits.
GPT said in its 20 page statement that the continuing deterioration of global financial, credit and property markets was having a marked impact on real estate companies, and difficult operating conditions are expected for the rest of 2008.
Some companies have been aware of that for some while (Allco, Babcock and Brown and Macquarie Bank). Others, like Lend Lease, have yet to accept this new reality, judging by the way it wants to launch takeovers in the retirement sector (for groups like FKP).
The downturn internationally which has just been recognised by GPT management, is the same loss of confidence that has seen markets sold off, especially since May. That’s pushed the market lower and despite that relief rebound Friday, the downward trend re-emerged yesterday.
GPT also revised its distribution guidance 31% to 20c per share with earnings guidance slashed 30% to 21.2c per share.
Profit would fall because GPT would be delaying a partial sell down of its 40% stake in a wholesale office fund, lower development profits and fewer asset sales, all things the company planned for its financial year to December 2008.
The company will now retain development profits for reinvestment instead of distributing them to shareholders.
GPT will distribute about 90% to 100% of all other operating income depending on the composition of the earnings and capital management strategies at the time.
The company has already paid 7.2c per stapled security in the March quarter and expects to pay a further 4.2c for the three months to June.
The new forecast compares with market forecasts of EPS of 28.1c and distribution forecasts of 28.9c per share. It said back in February it expected distributions at 28.9c per security in 2008.
The GPT news has been expected by some analysts who wondered how it could avoid the same problems that have hit other companies in the sector. Its stockmarket price has fallen in recent months as the sector has been downgraded by investors, but yesterday’s sharp reaction shows that the lack of an update (it should have come early last month when the likes of Valad and APN were revealing lowered expectations) has meant there has been a bit of padding in the GPT valuation.
GPT said it will now retain development profits for reinvestment instead of distributing them to shareholders.
GPT will distribute about 90% to 100% of all other operating income depending on the composition of the earnings and capital management strategies at the time.
"We believe that this updated guidance is appropriate at this half-way mark of the financial year, owing to a persistently challenging operating environment. We expect difficult conditions to continue for at least the second half of this calendar year," the company said in its update statement.
GPT said headline and look through gearing remained within the group’s policy ranges of 30% to 40% and up to 50% respectively.
As at December 2007, headline gearing was 36.3% and look through gearing was 46.8%.
The company’s debt remained within all covenants and there were no provisions with respect to market capitalisation.
GPT said $100 million of refinancing is required for the remainder of 2008, with 2009 maturities of approximately $700 million, and GPT has sufficient undrawn facilities available to meet these refinancing requirements.
GPT said its portfolio of high quality Australian retail, office and industrial property continues to perform very strongly
"The review has taken particular note of reduced demand for wholesale fund equity raisings (particularly for core real estate), and a major reduction in transaction activity globally. As a result, GPT management has decided to defer, or revise assumptions in relation to, certain initiatives previously assumed to occur in 2008, including:
"(i) the partial sell down of its 40% interest in the GPT Wholesale Office Fund (“GWOF”);
"(ii) the realisation of development profits;
"(iii) asset sales, including assets owned by the Joint Venture Fund; and
"(iv) the proposed launch of various funds by the European funds management platform. In addition, this review has identified likely reductions to 2008 operating income for a number of business units, excluding the Australian retail, office and industrial portfolios, which continue
