GPT Swears To Change

Sydney, Aug 28, 2008 (ABN Newswire) - Not a word about the outlook for 2009, The management of GPT is still too busy dealing with the realities of 2008 and the damage done by the credit crunch.

The 2008 distribution is being slashed by a third, and the shares have fallen by around 70%; there was a lot of chat in the comments about the new, conservative outlook, but nothing substantive on what distributions might look like in 2009.

GPT's net loss for the six months ended June 30 was $67.7 million, compared to a profit of $737.1 million in the previous corresponding period. The loss was after hundreds of millions of dollars of write-downs in asset and investment values.

For the full year, it has forecast operating income of $464 million, down from $605.1 million in 2007. It's expected earnings per share (EPS) for the year is 21.2 cents, and its distribution per security guidance is 20 cents.

GPT securities finished off 1.5 cents at $1.685.



But not a word about 2009.

At least Stockland, a housing and shipping centre developer and operator reckons it will boost its distribution next year by 1%.

The bleat from GPT was predictable about going back to basics. But then that's what we have heard from a long list of engineered finance and property groups, from Stockland, Centro, Allco, to Mirvac and Valad on Tuesday and from Babcock and Brown, Macquarie Group's satellites and any number of easy money riders.

"GPT is currently trading at a discount to NTA of approximately 50%, which we regard as unsustainable given the quality of GPT's underlying asset base.

The initiatives outlined today, while likely to take some time to execute, are consistent with the objective of GPT's management team and Board of pursuing a strategic direction that will deliver long-term value for securityholders," CEO Nick Lyons said in the company's interim earnings report," 

In summing up GPT's future strategic direction and the underlying rationale, Mr. Lyons said: "The strategic initiatives outlined today will result in a simplified business focusing on the ownership, management and development of high quality Australian real estate, and a more conservative financial structure reflective of the current environment and appropriate for this business model moving forward.

"The quality of GPT's underlying asset base and revenue streams will be significantly enhanced, but will remain suitably diversified by asset class, revenue source and capital source to provide resilience throughout the real estate cycle.

"As the initiatives are progressed, we believe that we will see GPT's underlying value emerge and GPT well-positioned with good growth prospects moving forward."

"GPT remains a business that still expects to generate nearly half a billion dollars in realised operating income this year, and remains in a strong financial position with balance sheet gearing of 37%, and no recourse to GPT for debt within GPT's funds (including the Joint Venture Fund).

"We have approximately $14 billion of assets including an irreplaceable, diversified portfolio of high quality Australian real estate."

There's a sense of wonderment at what happened and how all the grand designs were brought down as leveraged and risk returned as corporate no-nos and the cost of money ballooned.

Now economies in the US, Europe and Australia are declining, adding further pressure to stretched groups like GPT which is trying to regain its poise.

It's a rediscovery of the joys and benefits of being a 'simple' business, without complexity: This after making itself very opaque and complex with the help of the geniuses of Babcock and Brown and its discredited management.

Like so many Australian companies who rode the easy money trail, and came a cropper, there's a lot of mea culpas and hair shirts at GPT, but few apologies to investors for seeing the value of their holdings destroyed as the companies stood too long and waited for the credit crunch train to run them over.

Before the 2005 takeover battle between Lend Lease, Westfield (how the ASX ever allowed its involvement) and the management of GPT and the bright sparks at Babcock And Brown BNB GPT was a safe, boring company, well regarded, with some of the best shopping centre, office building and other assets in the country.

It was a contender with Westfield for its security and performance as a shopping centre operator and all of those advantages and values were abandoned for the 'synergies' of joint ventures in Europe with Babcock and Brown) and in the US with a company called Benchmark, and for a whole lot of other poor calls.

For all Westfield's reluctance to face up to the collapse of the UK property market (except to stark stalking the rival Liberty group), the Lowy run company has emerged as a 'winner' from the crunching of the financial engineers, and GPT could have been there beside it.

In its profit announcement this morning, GPT management talked a lot about getting back to basics and to a simpler structure.

There was an operating profit, and like its peers, an unfortunate loss to quickly paper over.

"Realised operating income for the half-year to 30 June 2008 of $234 million, full-year guidance of $464 million confirmed

"Statutory loss for the six months to 30 June 2008 of $68 million, primarily as a result of non-cash adjustments:

"$122 million write-down of goodwill associated with GPT Halverton; and - $222 million (1.5%) net reduction in asset valuations (primarily relating to Hotel/Tourism, the Joint Venture Fund and warehoused assets)

"Cash distributions of 11.4 cents per security for the six months to 30 June 2008. Which you had to then read deeper into the report to find this was a 20% drop on the 14.3 cents distributed back when the hay was being made in the pre-crunch days of the first half of 2007.

That means full year distribution will be cut to 20 cents, compared to 29.2 cents in 2007, with the company keeping its development profits to help finance growth and not paying them out to boost returns and make the business look better than it was. Distributions will be based on operating performance.

Headline gearing (37.3%) and look-through gearing (46.7%) remain within policy ranges


Liquidity position remains comfortable ($1.1 billion of funding required over the next 12 months covered by $1.4 billion of cash and other committed funding sources)

Revised distribution policy and underwritten DRP to provide additional financing flexibility whilst non-core asset sale program is progressed

Simplified strategy focused on high quality Australian real estate, with traditional rental streams from property ownership complemented by development and funds management capabilities and earnings streams not available to GPT pre-internalisation.

Strategic focus on core domestic operations to be reinforced by $1.7 billion non-core asset sale program (Hotel/Tourism, Homemaker, warehoused assets), potential exit from US Seniors and the expected orderly realisation of the Joint Venture Fund from December 2009 No wonder the shares trade around $1.66, less than a third the 52 week high of $5.11.


It's all so easy to see now for the likes of GPT. Back to basics and the good old days of being boring. Just like Mirvac, and Fosters, if you think about. it's all about wrong strategies and poor management making.

 


 

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