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GPT Group (GPT), Australia’s second- biggest diversified real estate trust, offered to buy Australand Property Group (ALZ)’s industrial and commercial property assets and development business.
The proposal involves Australand, controlled by Singapore’s Capitaland Ltd. (CAPL), keeping its residential business and remaining a listed entity, Sydney-based Australand said in a statement to the Australian stock exchange today. The cash bid, whose pricing was not disclosed, is incomplete, conditional and subject to due diligence, it said, advising shareholders to take no action.
Australand’s industrial and office investment properties, valued at A$2.3 billion ($2.4 billion) at June 30, will provide about 70 percent of earnings this year, it forecast on Nov. 2. Its new commercial and industrial development projects have an end value of A$2.6 billion, it said on July 26. The residential business, experiencing weakness in Melbourne and southeast Queensland, will see lower sales volumes, it said.
“It wouldn’t make sense for Australand to sell its crown jewels, which are helping support its residential business,” Stuart Cartledge, managing director of Melbourne-based Phoenix Portfolios, said in a telephone interview. “I can understand why GPT don’t want to buy the whole thing because the last thing they want is to get into residential development, but I don’t think they can extract the best bits of Australand without paying a premium.”
Australand shares jumped 6.3 percent to A$3.21 at the close of trading in Sydney, the highest close since July 2008. GPT rose 0.8 percent to A$3.63.
With tenants including Boeing Co. (BA) and Ericsson AB’s Australian operations, Australand saw occupancies at 99 percent and will have fixed rental growth across most of its properties, it said Nov. 2.
“GPT would need to offer a premium to book value to make it attractive to Capitaland, which holds its ownership in Australand at book, rather than market, value,” John Kim, head or real estate research at CLSA Asia-Pacific Markets, wrote in a note to clients. Australand is likely to be de-listed if the transaction is successful given the asset value of residential business is just A$1 billion and its earnings are volatile, he said in the note.
Australand’s net tangible asset value was A$2 billion, or A$3.46 a share, as of June 30, according to company statements. Capitaland owns 59 percent of Australand, according to data compiled by Bloomberg.
GPT, which is seeking expansion by boosting fund management, development projects and acquisitions, wants to enter talks with Australand’s board, it said in a separate statement. GPT announced its strategy to increase exposure to office, logistics and business parks in June and a deal with Australand is in line with that plan, it said.
GPT, which has about A$2 billion of debt capacity to keep net debt under 35 percent of total assets, may need to sell shares to fund the acquisition, Kim said.
The company, which has been conservative in its operations, is unlikely to offer a premium for Australand, said Winston Sammut, Sydney-based managing director at Maxim Asset Management, who owns shares in both companies.
“I would expect their offer price to be at a slight discount or at Australand’s net tangible assets,” he said in a telephone interview. “I don’t see much upside over the next 12 months, so it’s a bit premature to be paying above NTA.”
Demand for prime industrial space in Australia may soften due to a slowdown in the nation’s resources boom, weaker economic expansion in China and unemployment growth, Los Angeles-based broker CBRE Group Inc., said in a report in November. Rental growth in prime office properties also eased in the three months to Sept. 30 and is expected to slow in the next year, as business confidence remains weak, the broker said.
Australand has appointed Fort Street Advisers as its financial adviser and King & Wood Mallesons as its legal adviser, the company said. GPT is being advised by Bank of America Merrill Lynch and Morgan Stanley, spokesman Brett Zarb said by telephone.
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