GPT slips off Moody's watch list after $1.7b equity move
Sydney Morning Herald
Saturday July 11, 2009
GPT was given a vital ratings upgrade during the week, at a time when it is in discussions to exit its joint venture in Europe and undertake asset sales to ease its debt burden.Having just raised much-needed $1.7 billion in cash, the country's largest and oldest diversified trust, with arguably the biggest shareholder base after Westfield, got a tick from Moody's saying its credit was no longer on the watch list for downgrade.The firm said the short- and long-term debt of GPT was now at the investment grade Baa2 level. The agency said the upgrade reflects the material improvement in GPT's financial profile following the recent equity issue.Clement Chong, a Moody's analyst, said GPT's strengthened position should leave sufficient flexibility to withstand challenges posed by its operating environment."Following the recent equity issuance, GPT's financial leverage is now at a level that provides sufficient protection against the weak property fundamentals which are unlikely to improve in the next 12 to 18 months considering our expectations for asset revaluations and rental levels over that period," Mr Chong said. "Moody's assessment of GPT's financial leverage incorporates pro-rata consolidation of the Australian wholesale funds, but excludes the Babcock & Brown joint venture."Amid the upgrade Deutsche Bank's Matthew Bertram said he expects a strategy update to market before GPT's half-year results, due on August 27. GPT has a December 31 balance date. Mr Bertram said GPT has stated that a key priority is accelerating an exit from the BNB joint venture."In our view the options include a sale of equity interest [at nominal value], or spin-off via a separate entity. The latter provides option value to GPT investors in the event that any cash is realised medium-term through asset sales," Mr Bertram said."In our view GPT should consider a complete restructure/spin-off of the European asset management platform. A successful restructure [in any form] may deliver about 5 per cent earnings upgrade to GPT on our estimates."In 2009 Deutsche has allowed for losses from the joint venture to decline to about $25 million with a drop in staff reduction.
© 2009 Sydney Morning Herald
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