GPT GROUP — Capital/Financing Update 2009

Dec 21, 2009

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Attention ASX Company Announcements Platform
Lodgement of Open Briefing []
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ASX Announcement: 22 December 2009

CFO on Capital Management

Open Briefing interview with CFO Michael O’Brien

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The GPT Group Level 52 MLC Centre 19 Martin Place SYDNEY, NSW 2000

In this Open Briefing[®] CFO Michael O’Brien talks to us about GPT’s revised capital management policies

• Distribution policy sustainability

• Gearing range provides flexibility for potential opportunities

• Ability to deliver competitive returns

Record of interview:

openbriefing.com

The GPT Group yesterday received a credit rating upgrade to Baa1 from Baa2 from Moody’s Investors Services. Will the upgrade have a material impact on your debt funding costs?

CFO Michael O’Brien

It won’t have a direct pricing impact on our current borrowings. However, it’s a further affirmation that the credit agencies are very supportive of the direction we’re heading in terms of balance sheet management.

The agencies have reacted very positively to our strategic progress and our recent capital management policy changes. Certainly the revision of our distribution policy is seen as a positive by both Moody’s and Standard & Poor’s, and assisted in Moody’s upgrading of our rating by one notch.

openbriefing.com

Under your revised distribution payout policy, announced Friday, GPT will pay the greater of 70 to 80 percent of realised operating income and taxable income. The previous policy was to distribute 90 to 100 percent of underlying realised income, excluding development profits. What was the rationale for the change and how will the funds retained in the Group be employed?

CFO Michael O’Brien

REITs are generally capital intensive. Paying out almost all the income that’s earned has been a long standing practice. That’s been accepted when there has been plenty of liquidity and asset values are stable or improving. But when credit markets are tight and there’s pressure on property valuations, as we’ve seen over the last couple of years, the practice of paying out almost all of your income is really not sustainable.

ASX Announcement: 22 December 2009 / Open Briefing® / Michael O’Brien / CFO The GPT Group

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We believe retaining a level of earnings that allows us to fund ongoing operational capital expenditure is a much more sustainable practice. That’s how we’ve designed the new distribution policy: we’ll retain our ongoing operational capital expenditure, which historically has been $50 million to $60 million annually, and have a bit of flexibility should credit markets tighten further.

openbriefing.com

Why have you stipulated taxable income as a metric in the new distribution policy and what has been the difference between realised operating income and taxable income in recent periods?

CFO Michael O’Brien

The reason is that if we retain a portion of taxable income, investors could be exposed to additional taxation. We wanted to ensure our securityholders wouldn’t be disadvantaged from a tax perspective, so the policy is framed as the greater of 70 to 80 percent of our underlying earnings or taxable income.

openbriefing.com

What level of securityholder support can you expect for a policy that reduces returns to securityholders?

CFO Michael O’Brien

We believe the vast majority of our investors will understand that this is prudent financial policy and a positive move in terms of the capital structure of the Group. Across the sector we’ve seen strong support for this type of change over the last six months or so.

openbriefing.com

GPT’s guidance is for a distribution of 4.5 cents per security for the current year ending December 2009. Can you provide any guidance on the distribution outlook for 2010?

CFO Michael O’Brien

Not at this stage. We provide guidance on the distribution and our realised operating income for the year ahead at our annual results announcement each February.

openbriefing.com

What will be the key drivers of distribution growth in the nearer term?

CFO Michael O’Brien

The very strong quality of the assets in our retail, office and industrial/business park portfolios means we’re very well positioned in terms of the occupancy, strength of tenant base and the rental growth we can achieve. Our existing portfolio is in very good shape: we’re seeing retail hold up extremely well, and we’re seeing the demand profile in office markets starting to improve. A large part of the portfolio includes structured rental increases within the leases. We also have a strong development pipeline that, over time, will provide attractive returns for our securityholders.

openbriefing.com

You’ve also indicated that GPT intends to manage gearing (debt to tangible assets) in a range of 25 to 35 percent and that you will “increase gearing beyond 30 percent if required, provided a

ASX Announcement: 22 December 2009 / Open Briefing® / Michael O’Brien / CFO The GPT Group

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reduction to 30 percent or below is achieved within a reasonable time frame.” To what extent will the new gearing range be adequate to cover your development funding requirements without recourse to further equity issue?

CFO Michael O’Brien

As at 30 September we had gearing of around 22 percent. We’re very comfortable that our target range provides us with flexibility if good investment opportunities emerge. We’ve also indicated that if credit markets remain challenging and the cost of debt high, we’re happy to maintain a level of gearing at the lower end of the range.

openbriefing.com

To what extent will the lower gearing policy restrict you to organic growth going forward?

CFO Michael O’Brien

The policy will guide us in terms of making any investment decisions. We’re confident of good organic growth, but if there are larger opportunities that emerge over time, of course we’ll look at them. We’ve got a very strong balance sheet and business model that provide us with the potential to look at attractive opportunities going forward.

openbriefing.com

How do you expect your longer term return on investment and earnings growth metrics to be impacted by maintaining a lower gearing range?

CFO Michael O’Brien

We think we can deliver a very competitive return for our investors given the quality of our assets and the opportunities we have within our existing portfolio. The capital management policies we’ve announced provide our investors with clarity on how we’ll deploy capital and use the balance sheet over time.

openbriefing.com.au

Thank you Michael.

For more information on GPT, visit www.gpt.com.au or call Donna Byrne, Head of Corporate Affairs and Communication on (+61 2) 8239 3515

To read past Open Briefings by GPT, or to receive future Open Briefings by email, visit www.openbriefing.com

DISCLAIMER: Orient Capital Pty has taken reasonable care in publishing the information contained in this Open Briefing®. It is information given in a summary form and does not purport to be complete. The information contained is not intended to be used as the basis for making any investment decision and you are solely responsible for any use you choose to make of the information. We strongly advise that you seek independent professional advice before making any investment decisions. Orient Capital Pty Ltd is not responsible for any consequences of the use you make of the information, including any loss or damage you or a third party might suffer as a result of that use.

ASX Announcement: 22 December 2009 / Open Briefing® / Michael O’Brien / CFO The GPT Group

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