This article is from the Australian Property Journal archive
Two of Australia’s largest property players, Stockland and General Property, are poised to mount a $3.5 billion takeover bid for Investa Property.
Stockland and GPT, who almost married each other two years ago, looks set to cross each others path again this time at the opposite ends of the table.
The transaction will be the first takeover of a stapled entity in Australian LPT history, following a spate of merger and acquisitions by property companies to form powerhouses three years ago.
Yesterday, property analysts said the economics stack up for either Stockland or GPT, to mount a takeover bid for Investa, Australia’s largest office property trust – which under the helm of managing director Chris O’Donnell has resisted the trend to diversify offshore to markets in Asia, Europe and United States.
A JP Morgan analyst said this would be the right time to pounce on Investa, which at the end of this financial year will be without managing director Chris O’Donnell – a figure head in transforming IPG into a property powerhouse.
O’Donnell announced on Wednesday that he had resigned take up a role as chief executive at Nakheel Property Group, a $33 billion development company in Dubai.
The analyst added a takeover of Investa presents a number of opportunities for both parties. He suggested one of the opportunities would see a spin off of Investa’s properties into a $1 billion wholesale fund.
He added that another option would be to buy Investa’s assets at a 7% yield and sell interests in IPG’s premium assets for a 6% yield.
“It would make the economics of remaining assets better,” he added.
However, he said whether it is a decent acquisition is debatable.
“IPG is heavily exposed to the office market, do they (GPT and Stockland) want to be heavily skewed to offices?” he said.
However, he added office fundamentals are improving in Australia and if a takeover was to take place, this would be the right time in the cycle.
Property Investment Research’s head of listed securities Paul Pavlidis said the friendly $3-$3.5 billion takeover of IPG can be funded by both parties.
“This will not the biggest takeover bid in LPT history, two years ago Stockland and Lend Lease separately proposed a $10 billion takeover bid of GPT and at the time GPT’s yield was 7.3%,” he added.
Pavlidis said Investa’s forward yield is currently at 8%.
“Stockland forward yield is 6.4%, while GPT is 6.2% yield. So for every dollar Stockland pays at 6.4%, they are making 8%.
“So $3 billion is not out of the question,” he added.
Pavlidis said even if the players decide to pay a 15% premium above IPG’s end of day trade – shares traded 5 cents or 2% higher yesterday at $2.05, at $2.30, the economics still stack up.
“At $2.30, they would be buying Investa at a 7.3% yield. That is still higher than yields at both Stockland and GPT.
“Even if they bought Investa at a 0.1% yield difference, IPG will still provide earnings accretive for Stockland and GPT,” he added.
In addition, Pavlidis said both players are looking to grow their funds management business and the addition of IPG’s office property portfolio will boost recurring earnings.
“It will be similar to Centro’s model, a takeover will see both parties sell the assets into similar funds or spin it off into a third party fund where they collect management fees.
“The market believes a pick up in the office sector is underway, the industrial market is doing well and the retail sector has always been the darling.
“It could be a good time to buy into offices,” he added.
However, Pavlidis said the market thought back in October 2003 that fundamentals in the Australian office market were improving when Investa took over the $1.8 billion Principal Office Fund (Delta Office Fund) following the breakup and sell off assets in AMP’s property portfolio.
“We are now in 2006, still talking about a pick up in the office sector,” he concluded.
Propertyreview.com.au yesterday spoke to GPT’s chief executive Nic Lyons who did not rule out anything and said nothing.
By Nelson Yap
