Is this a precursor to a bigger play, or a clever raid aimed at putting a foot on a solid portfolio of businesses currently not in the acquirer’s asset base?
In this market, the latter is possibly the answer, at the moment, certainly until credit markets unfreeze and finance becomes more freely available.
But we have seen the start of the first major rationalisation in the struggling property trust sector with Stockland acquiring a 12.7% stake in the GPT.
The news saw GPT securities soar in price, rising by 33% and more, to $1.44, giving Stockland an immediate profit on its move into the share register of the country’s second largest retail mall owner and largest owner of premium CBD office space and tourism assets.
GPT’s securities however retreated after 11.30 am as investors realised this was a ‘play’ not a precursor to a takeover from Stockland. They eased back to around $1.19, up 14c or 13.3% on Tuesday’s close.
Even after GPT’s recent issue, Stockland is a bigger company with a market value of more than $6.7 billion to GPT’s $4.2 billion-plus, depending on where the shares settle today. But Stockland only has $700 million or so in cash, and the banks are shy, so no deal for the moment.
Not unless Stockland can prise GPT’s shopping mall assets away.
Stockland, which raised $300 million a month ago to fund deals, has already made two small plays in the retirement living sector.
But this is the big one, as it revealed yesterday, it had snapped up a large stake in GPT at $1.07 per security.
"Stockland has acquired a 12.7% strategic stake in GPT Group at a volume weighted average price (vwap) of $1.07,” the statement said to the ASX.
"The interest in GPT includes the acquisition of the majority of holdings managed by Perennial Investments via cash and the issue of Stockland securities.
"Stockland also has an interest in GPT securities through an equity swap facility. In total, Stockland has an interest in 507.3 million GPT securities."
It said it had made a cash payment of $224.3 million to Perennial for 195 million GPT securities, to be funded from existing debt facilities;
"The issue of 51 million Stockland ordinary securities to Perennial Investments in exchange for 195 million GPT securities.
"The effective issue price will be the closing price of Stockland securities on 11 November of $4.37, for total consideration of $222.9 million.
"A $97 million equity swap facility with an investment bank for 117.3 million GPT securities. This represents an off balance sheet exposure.
"Stockland Managing Director Matthew Quinn said: "GPT has a portfolio of extremely high quality assets, including a number of iconic Australian shopping centres and office buildings."
"The acquisition price of the GPT securities represents good value for our security holders and we are pleased that Perennial has decided to increase its investment in Stockland through this transaction."
GPT has just completed raising upwards of $1.6 billion to recapitalise its battered finances after ill-advised and ill-timed adventures in European housing with Babcock & Brown and a loss-making involvement in US property as well.
GPT has been struggling to convince the market that it had a handle on its problems: part of the funding raising will see the Singapore government’s GIC Real Estate emerge with a shareholding of at least 10% and possibly a bit more.
The last time there was a battle for GPT was back in 2005 when Lend Lease tried to regain control of the business that it had started.
Westfield Holdings interfered by buying more than 6% and threw its vote the way of the board and the involvement in the Babcock & Brown adventure.
Westfield picked up some interests in a couple of high class shopping malls and sold its GPT stake. The rest is history and GPT’s ambitions were brought undone by the credit crunch and ending of the easy credit environment.
Westfield is more stretched now and is looking to generate $1 billion in cash from having half its dividend reinvestment program underwritten over the next year. Westfield has several big centres to complete in Australia, the US and London.
GPT doesn’t have a CEO at the moment after Nic Lyons walked the plank when the fund raising and earnings downgrade were announced last month, while chairman, Peter Joseph will step down at the 2009 annual meeting.
Coincidentally, Westfield was updating the market yesterday on its third quarter performance.
Westfield confirmed that it expects operational earnings to grow 5.5% in calendar 2008 and it says it will pay a distribution of $1.065 per stapled security in fiscal 2008, as previously forecast.
The company, which operates 119 shopping malls in four countries, said current liquidity, was about $5.8 billion and all its debt due in 2008 had been refinanced.
Westfield has also restarted its distribution reinvestment plan, which will be 50% underwritten next year. That will raise upwards of $1 billion in new capital next year.
The company’s average occupancy for its whole portfolio was 97.3%, but in the troubled US retailing sector it was a low 92.8% at its 55 centres.
Occupancy levels in Australia and New Zealand were over 99.5% at the 56 centres in both countries and 99% where it has one fully owned centre and the newly opened Westfield London which is 50
