GPT $3billion bid for Australand portfolio to spur further consolidation activity in already concentrated A-REIT sector

Australia’s already highly-concentrated listed property trust sector is set to consolidate even further following GPT’s $3 billion bid to acquire Australand’s investment property portfolio and commercial and industrial business.

GPT’s non-binding proposal does not include the residential assets and business of Australand.

It has been described as a “semi-friendly” approach with GPT looking to enter into “constructive discussions with the board of Australand with the aim of developing a complete proposal in the interests of both sets of securityholders”.

GPT is seeking to re-weight its portfolio and strategy with an increased exposure to office, logistics and business parks while Australand has been seeking to reduce its non-residential holdings having announced the sale of two Sydney commercial properties in the last week.

It sold 80 Alfred Street in Milsons Point to a private developer for $49 million on December 7 and on December 4 announced the sale of the 111 Darlinghurst Road, Kings Cross (the former Crest Hotel) to the Iris Capital Group for $65 million.

Australand has confirmed the unsolicited approach from GPT Group.

“The proposal involves Australand Holdings Limited retaining the residential business and remaining a listed entity," says Australand.

“The proposal is incomplete, highly conditional and is subject to a number of factors including undertaking due diligence.

“Australand has become aware of market rumours in relation to this proposal and, accordingly, has decided to make this announcement.

“The Board of Australand has not formed a view at this stage on the proposal. There is no guarantee that the proposal or any discussions with The GPT Group will lead to a formal, binding proposal for the acquisition of the Investment Property Portfolio and its Commercial and Industrial business. Accordingly, the Board of Australand recommends that securityholders take no action at this time.”

Both REITS have said they will keep their shareholders and the market updated of any further material developments as they occur.

Australand has appointed Fort Street Advisers as financial adviser and King & Wood Mallesons as legal adviser in relation to the proposal.

GPT Group has been led by Michael Cameron since 2009 while Australand has ben led by Bob Johnson since 2007.

Australia’s listed property trust sector (AREITS) has a market capitalisation of $82 billion with more than 90%  of the market held by the top 10 stocks, with Westfield Group and its shopping centre spin-off Westfield Retail Trust accounting for around 40% of the pie.

The other major A-REITs are Stockland, Goodman Group, GPT, Centro, Mirvac, Dexus, Investa, Charter Hall Office REIT and Multiplex.

The proposed GPT/Australand deal is set to spur renewed merger and acquisition activity, after a quiet 2012 with the Investa Office Fund considered the most vulnerable along with Colonial First State – Commonwealth Property Office Fund and CFS Retail, according to the Australian Financial Review.

According to 2012 BDO A-REIT Survey, this year saw less transactions taking place than in 2011, but more interest from offshore buyers.

Over 2012, “offshore acquirers were at the forefront taking advantage of the opportunity to acquire high quality assets at a discount to net tangible assets with a consortium led by Reco Ambrosia acquiring Charter Hall Office REIT.

According to the BDO survey, while the number of merger and acquisition transactions within the sector declined in comparison to last year, the overall transaction size increased as the transaction activity focused primarily on mid-cap A-REITs.

“Despite the sustained impact on the high Australian dollar, acquisitions were again led by foreign investment, in particular from North America. Overseas buyers have been attracted to A-REITs for two reasons.

“Firstly, some buyers have capitalised on depressed security prices in order to acquire foreign real estate in recovering markets at below asset valuation. Secondly, Australian real estate remains attractive to overseas investors due to the stable economy, and the underlying quality of assets with occupancies and strong tenant registers,” says Sebastian Stevens, BDO corporate finance partner and author of the A-REIT Survey