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GPT GROUP M&A Activity 2004
65009_rns_2004-11-14_672cc5db-ae33-4363-af91-be1e7261a905.pdf
M&A Activity
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Lend Lease Corporation Limited
ABN 32 000 226 228
f evel 4 30 The Bond 30 Hickson Road Millers Point NSW 2000 Australia
Telephone (612) 9236 6111
Facsimile (612) 9252 2192
www.lendlease.com
15 November 2004
The Manager Companies Section Australian Stock Exchange Limited
Pages: Forty-three (43) pages
Dear Sir
STOCK EXCHANGE ANNOUNCEMENT
The Manager
Companies Section
New Zealand Stock Exchange Limited
LEND LEASE / GPT MERGER
Lend Lease Corporation Limited ("Lend Lease") has prepared the attached detailed analysis of the underlying value of the recommended merger of General Property Trust ("GPT") with Lend Lease compared to the last minute proposal to make a takeover offer for GPT by Stockland Corporation Limited ("Stockland") last week.
Some commentary in the market over the last week has suggested that on a "see through price" basis" the Stockland proposal and the Lend Lease merger with GPT are "roughly equivalent". Lend Lease believes the use of a "see through price basis" to compare the two proposals ignores the fact that under the merger of GPT with Lend Lease, a new security is created that will have different characteristics and value drivers to that of either current Lend Lease shares or GPT units.
The Lend Lease / GPT merger is not a takeover of GPT. Lend Lease shares are not the consideration for GPT unitholders in the same way as Stockland securities are the sole consideration under the Stockland proposal.
The attached analysis shows a substantial underlying value differential between the two proposals when consideration is given to the earnings multiples and asset book value multiples that have been applied to Stockland's core residential development business compared to Lend Lease's urban community development business, Delfin Lend Lease, which is larger, more diverse and, Lend Lease believes, higher quality than the Stockland business.
The analysis shows that if similar earnings and asset book value multiples are applied to the Stockland business as have been applied to Delfin Lend Lease by GPT's Independent Expert, the underlying value of the Stockland proposal is reduced to under \$3.00 per GPT unit compared to GPT's Independent Expert's latest valuation of the Lend Lease merger proposal of \$3.72. Alternatively, if the multiples being applied by the market to the Stockland residential business are applied to the Delfin Lend Lease business, the underlying value of the Lend Lease / GPT merger is worth far more than the Independent Expert's valuation, the current market price of GPT and, clearly, the Stockland proposal.
The analysis also compares the quality of the Stockland proposal to that of GPT and other fundamental measures which Lend Lease believes show a clear and substantial value advantage for GPT unitholders through merging with Lend Lease under the current proposal, as recommended by the GPT Independent Directors and the Independent Expert.
Further information is contained in the attached media release.
Yours faithfully LEND LEASE CORPORATION LIMITED
S J SHARPE Company Secretary
MEDIA RELEASE
14 NOVEMBER 2004
LEND LEASE / GPT MERGER MEETINGS TO PROCEED AS PLANNED
Speaking on the Business Sunday and Inside Business programs today, The Managing Director of Lend Lease Corporation Limited ("Lend Lease"), Greg Clarke and the Chairman of the Independent Directors of General property Trust ("GPT"), Peter Joseph, confirmed the meetings of Lend Lease shareholders and GPT unitholders this Wednesday, to approve the recommended merger, will proceed as planned.
The Lend Lease / GPT merger, is a much more attractive proposition for GPT unitholders compared to Stockland's highly uncertain, conditional proposal.
At these meetings, GPT unitholders face a clear and simple choice.
By voting to support the Lend Lease/GPT merger, GPT unitholders will be supporting a transaction which
- $\triangleright$ Is recommended by the GPT Independent Directors
- $\triangleright$ Is recommended by the Independent Expert to the GPT Independent Directors, Grant Samuel
- $\triangleright$ Has resulted in a 22% increase in GPT's unit price to its all time high since the announcement of the original merger proposal in May $-$ an aggregate \$1.4bn increase in GPT's market capitalisation
- $\triangleright$ Will result in GPT unitholders being able to trade in their new stapled securities on December 7 - over a month before the earliest possible time that Stockland's conditional offer could close.
Lend Lease's recommended merger provides GPT unitholders with a significantly better outcome in each of the following eight key respects:
- $\triangleright$ pro forma value,
- $\triangleright$ cash component to the consideration,
- $\triangleright$ tax treatment of the consideration,
- $\triangleright$ initial distributions,
- $\triangleright$ prospective earnings and distribution growth,
- $\triangleright$ corporate industry diversification,
- $\triangleright$ geographic diversification and post merger integration risk.
There is also, in Lend Lease's view, a substantial difference in the underlying value to GPT of the merger with Lend Lease compared to Stockland's last minute take-over proposal.
As Stockland's corporate earnings are almost entirely dependent on the Australian residential development sector, the quality and value of that part of its business is critical to the value of Stockland's offer for GPT.
Stockland's residential development business is smaller than Lend Lease's residential businesses and lower quality in terms of key measures such as sales backlog, average lot size of projects and capacity to add value to land through master-planning and vertically integrated development for specialist sectors such as retirement living and real estate sales.
Despite this difference in scale and quality of earnings composition, the current price of Stockland's securities, in Lend Lease's view, incorporates a value for this business of between 16 to 20 times earnings compared to the multiple for Lend Lease's Delfin residential business of 8 to 10 times earnings as used by GPT's independent Expert, Grant Samuel and Associates, in its valuation of Lend Lease.
If sector average multiples are used for the Stockland business – consistent with Grant Samuel's valuation methodology for Lend Lease – Stockland's market value would be reduced by around \$1.6 billion, or \$1.25 per Stockland security.
This would lower the effective value of Stockland's offer consideration for GPT to well below \$3 per GPT unit.
As a result GPT investors are effectively being offered a discount for control by Stockland.
Stockland could have addressed these important value issues by participating in the GPT Independent Directors' open and transparent investigation of alternatives for the future of the business, which was conducted over many months. It chose not to do so.
Stockland Proposal Highly Uncertain and Conditional
GPT unitholders not voting to support the recommended Lend Lease merger will be effectively voting to endorse Stockland's highly uncertain and conditional proposal. Investors should note that the Stockland proposal:
- $\triangleright$ Contains conditions which would allow them to either not proceed with it or it could choose to offer a lower price. The terms of Stockland's offer are not certain
- $\triangleright$ Has been judged by the GPT Independent Directors and their Independent Expert to not be superior to Lend Lease's
- $\triangleright$ Would have highly uncertain taxation consequences to GPT unitholders in that unitholders:
- would not qualify for CGT rollover relief if Stockland did not acquire 80% of GPT
- would face under any circumstances an immediate CGT liability.
As with prior such releases by the Stockland, its open letter to GPT unitholders on Friday contains several inaccurate statements, including:
- "Stockland's offer provides GPT unitholders with the same focus on high quality Australian property". Stockland's investment properties are significantly lower quality than GPT's, evidenced by its 0.7% higher valuation cap rates than for GPT's portfolio. Stockland would dilute the quality of GPT's asset base.
- "Stockland has generated 22 years of consecutive profit growth". This is not true if considered on an earnings per security basis.
GPT Unitholders Can Express Their View this Wednesday
Lend Lease believes that the time has come for GPT investors to have their say and looks forward to the GPT unitholder vote this Wednesday, which will be a proper forum for GPT investors to exercise their investment rights and responsibilities. GPT investors should follow their Independent Directors' recommendation and vote YES to the Lend Lease / GPT merger.
Lend Lease notes that General Property Trust has announced today that GPT's Independent Directors have extended the time for lodgment of GPT proxies to 5.00 pm Sydney time on Tuesday 16 November 2004. GPT proxies can be lodged by fax on 02 9287 0309.
Lend Lease proxies will close at the scheduled time of 10.00 am Sydney time, Monday 15 November 2004.
ENDS
For further information:
Roger Burrows Lend Lease Corporation Tel: 0413 005 120
John Frey Cosway Australia Tel: 0411 361 361
Attachment : key Advantages for GPT of the recommended merger with Lend Lease
Issued by Lend Lease Corporation Limited: Investors in Lend Lease or GPT should only make decisions on their merger proposal and the offering of securities under it, based on the full details as set out in the Explanatory Memoranda for Lend Lease shareholders and GPT unitholders lodged with the Australian Securities and Investments Commission on 15 October 2004.
Key Advantages of Lend Lease Merger
| Recommended Lend Lease Merger |
Stockland Proposal |
|
|---|---|---|
| Grant Samuel valuation of consideration (1) | \$3.72 | \$3.57 |
| 2005F pro forma equivalent DPU | $26.4$ cents | 24.1 cents |
| 2006/2007 target DPU growth | 7% | Estimated 4% |
| Expected total return (1) | 14.0% | 10.6% |
| Investment property/corporate earnings mix | 71:29 | 88:12 |
| Corporate industry diversification | Residential, funds management, development/construction |
Residential |
| Geographical diversification | Australia/Asia (75%), Europe (15%), US (10%) |
Australasia (100%) |
| Cash component | Up to 65.6 cents | Nil |
| Cash-out Option | Yes | N 0 |
| Tax treatment of consideration | Rollover relief/Tax deferred | Part or all subject to Capital Gains Tax |
| Experienced manager of GPT assets/No integration risk | Yes | N 0 |
$(1)$ Per Grant Samuel, 10 November 2004. Lend Lease believes a longer time frame for consideration of Stockland's security price to be appropriate in the context of a transaction of this size, which produces a lower implied value than \$3.57.
Lend Lease believes its scrip offers better value and greater upside to GPT unitholders than does Stockland's
Benefits for GPT Unitholders From Lend Lease's Recommended Merger VS Stockland's Proposal
12 November 2004
Key Advantages of Lend Lease Merger
| Recommended Lend Lease Merger |
Stockland Proposal |
|
|---|---|---|
| Grant Samuel valuation of consideration (1) | \$3.72 | \$3.57 |
| 2005F pro-forma equivalent DPU | 26.4 cents | 24.1 cents |
| 2006/2007 target DPU growth | 7% | estimated 4% |
| Expected total return $(3)$ | 14.0% | 10.6% |
| Investment property / corporate earnings mix | 71:29 | 88:12 |
| Corporate industry diversification | Residential, funds management, development/construction |
Residential |
| Geographical diversification | Australia/Asia (75%). Europe (15%), US (10%) |
Australasia (100%) |
| Cash component | Up to 65.6 cents | Nil |
| Cash-out Option | Yes | No. |
| Tax treatment of consideration | Rollover relief /Tax Deferred |
Part or all subject to Capital Gains Tax |
| Experienced manager of GPT assets / No integration risk |
Yes | No. |
$(1)$ Per Grant Samuel, 10 November 2004. Lend Lease believes a longer time frame for consideration of Stockland's security price to be appropriate in the context of a transaction of this size, which produces a lower implied value than \$3.57
Furthermore, Lend Lease believes its scrip offers better value and greater upside to GPT unitholders than does Stockland's
The Lend Lease/GPT Recommended Merger is Superior in Financial Terms
The Lend Lease/GPT Recommended Merger Is Superior
The market has assessed the value of GPT under the Lend Lease recommended merger as follows: ↘
⋗ The market assessed value of GPT units under the Lend Lease recommended merger of around \$3.70 to \$3.75 is demonstrably higher than the Stockland proposal:
| Value of Stockland Security |
Ex-Dividend Adjustment (1) |
Implied Value per $GPT$ Unit (1) |
|
|---|---|---|---|
| 3 Month VWAP | \$5.71 | \$5.58 | \$3.42 |
| 1 Month VWAP | \$5.83 | \$5.70 | \$3.50 |
| 1 Week VWAP | \$5.98 | \$5.85 | \$3.59 |
Adjustment on same basis as Grant Samuel report of 10 November $(1)$
Two Independent Expert Valuations Reinforce the Superior Value of the Lend Lease Recommended Merger
Grant Samuel (GPT's Independent Expert)
- Grant Samuel confirmed on 10 November that its initial valuation of \$3.55 \$3.67 can be considered conservative in ⋟ the light of recent trading prices for GPT units and falling yields in the property sector generally
- Grant Samuel also stated that on the basis of share prices in the month to 5 November, a reasonable estimate of the ≻ value of the Lend Lease merger is around \$3.72 per GPT unit
- Distribution yields for the comparable LPTs have generally fallen since Grant Samuel's report to 5 November as ⋟ illustrated below:
| Price | Grant Samuel Report (1) 2005F Yield |
At 5 November 2005F Yield Price |
||
|---|---|---|---|---|
| Stockland Westfield Group Mirvac Group Multiplex Group |
\$5.80 \$15.39 \$4.52 \$3.66 |
6.6% 6.7% 7.5% 8.0% |
\$6.09 \$15.40 \$4.60 \$3.90 |
6.4% 6.7% 7.3% 7.4% |
| Average | 7.2% | 6.95% |
(1) Prices and yields as at 17 September 2004
A 0.25% reduction in 2005F yield for GPT/Lend Lease would increase the Grant Samuel valuation to \$3.65 - \$3.78 ⋗ (\$3.69 - \$3.82 including pre merger distribution)
Two Independent Expert Valuations Reinforce the Superior Value of the Lend Lease Recommended Merger (cont.)
Ernst & Young (Lend Lease's Independent Expert)
↘ Based on the Ernst & Young analysis, the equivalent value of a GPT unit under the Lend Lease recommended merger is \$3.51 to \$3.81 (\$3.55 to \$3.85 including pre merger distributions). calculated as follows:
| Low | High | |
|---|---|---|
| Value per Merged Group Security Merger Ratio Value per Existing GPT Unit Special Distributions |
\$10.85 3.8 2.86 0.656 |
\$11.97 3.8 3.15 0.656 |
| Income Distribution from 1 October to 30 November | \$3.51 0.041 \$3,55 |
\$3.81 0.041 \$3.85 |
(1) GPT unitholders also receive a 5.5 cents/unit distribution on 22 November (units have traded ex-distribution from 3 November)
↘ Ernst & Young's assessment is stated to be based on market conditions on 20 May 2004 and its report notes that yields have generally traded downwards since then "which provides further comfort that the anticipated market value range per Lend Lease Group security should be achieved or exceeded..."
LPT Valuations Have Improved Since Initial Merger Proposal Was Announced
$\triangleright$ The value of a GPT unit under the recommended Lend Lease merger is potentially significantly higher than the Independent Expert valuations given the improvement in the LPT yields since 20 May
Selected LPT Yields Since 20 May 2004
Illustrative Value of GPT/Lend Lease At Different Yields
Lend Lease Offers Substantially Better Distributions Than Stockland
(1) Assumes reinvestment of special distribution paid to GPT unitholders in connection with the merger
Stockland Proposal (2)
(2) 4% growth in 2005 consistent with Grant Samuel analysis. 4% growth in 2006 and 2007 based on assumed 5% underlying growth in Stockland's business (which is consistent with its 2005 forecast) and an assumed 3% underlying growth in GPT (which is consistent with its 2005 forecast).
Lend Lease provides distribution growth through organic earnings growth from existing operations and is not reliant on unidentified and potentially risky acquisitions
Lend Lease/GPT Offers the Greatest Potential Upside in Value Due to Current Yield Differential
Grant Samuel states expected returns from GPT/Lend Lease are 14% ⋗ compared to 10.6% from GPT/Stockland
Stockland/GPT yield may be higher than Stockland stand alone due to lower ➤ growth profile
What is the Underlying Value of Stockland Scrip?
What is the Underlying Value of Stockland Scrip?
- Given Stockland's offer is 100% scrip. GPT unitholders should not only consider the market price of Stockland's ≫ stapled securities, but also the underlying value of Stockland scrip
- One way to consider the value of Stockland's scrip is to look at the implied value of each component of Stockland's 声 business:
- Investment properties (say, same premium to book value that GPT was trading at pre merger announcement)
- Development and other corporate assets (balance)
Market's implied enterprise value of Stockland's development and corporate business is \$3.2 billion, a multiple of 20.1x estimated 2004 EBIT of around $$159m^{(1)}$
(1) Assuming Stockland trust assets would trade at same enterprise value to book value premium as GPT pre merger proposal. Stockland estimated $11$ development EBIT is after notional allocation of corporate costs based on relative EBIT. 2004 estimated corporate EBIT based on Macquarie Equity Research (27/09/04)
What is the Underlying Value of Stockland Scrip $(cont.)$ ?
Implied EBITA multiple for Stockland's $\blacktriangleright$ development business shows a substantial premium vs other comparables:
- (1) Development business includes apartments and retail. 2005F based on Macquarie Equities research corporation EBIT of \$195m (27/9/04)
- (2) Based on midpoint of Grant Samuel's valuation of Delfin Lend Lease of \$770m
Stockland's implied enterprise value per $\blacktriangleright$ backlog lot/unit is a significant premium to comparable companies
(1) Based on midpoint of Grant Samuel's valuation of Delfin Lend Lease of \$770m
How Would Stockland Be Valued Under Grant Samuel's Underlying Value Methodology?
If Stockland's development business underlying value is assessed using $\triangleright$ similar multiples to those used by Grant Samuel in its Lend Lease valuation, the implied value is:
| Residential Estates |
Apartments and Other |
Total $^{(1)}$ | |
|---|---|---|---|
| 2004 EBITA | \$144m | \$28m | $$1,477m - $1,588m$ |
| Multiple Range | $9.4x - 10.1x$ | $4.4x - 4.8x$ | |
| Implied Value | $$1,354m - $1,454m$ | $$123m - $134m$ | |
| 2005F EBITA $(2)$ | \$189m | \$28m | $$1,720m - $1,866m$ |
| Multiple Range | $8.3x - 9.0x$ | $5.4x - 5.9x$ | |
| Implied Value | $$1,569m - $1,701m$ | $$151m - $165m$ | |
| Gross Assets (3) | \$835m | \$261m | $$1,623m - $1,733m$ |
| Multiple Range | $1.6x - 1.7x$ | $1.1x - 1.2x$ | |
| Implied Value | $$1,336m - $1,420m$ | $$287m - $313m$ | |
| Average | $$1,420m - $1,525m$ | $$187m - $204m$ | $$1,607m - $1,729m$ |
- Excludes corporate costs not allocated to business units, which would lower the indicative value $(1)$
- Based on Macquarie Equities research $(2)$
- $(3)$ Inventories
How Would Stockland Be Valued Under Grant Samuel's Underlying Value Methodology (cont.)?
$\triangleright$ Aggregate "underlying value" of Stockland using Grant Samuel's approach would be:
| Low \$m\$ |
High \$m |
||
|---|---|---|---|
| Investment Assets Development Assets |
5,377 1,607 6,984 |
- $\overline{\phantom{a}}$ $\overline{\phantom{a}}$ |
5,377 1,729 7,106 |
| Less Net Debt | (1,467) | - | (1,467) |
| Underlying Equity Value | 5,517 | $\overline{\phantom{0}}$ | 5,639 |
| Underlying Value Per Share | \$4.36 | $\ddot{\phantom{1}}$ | \$4.46 |
- $\geq$ At \$6.09, Stockland is trading at a 37% 40% (approximately \$2.1 billion) premium to underlying value
- $\triangleright$ By comparison, Lend Lease is trading around low end of range of Grant Samuel's assessment of underlying value of \$11.64 to \$12.73
Is Stockland Offering GPT a Real Takeover Premium?
If Stockland's development assets are valued using the same multiples as Grant Samuel used for its ⋗ valuation of Lend Lease's comparable businesses, an implied premium to NTA for Stockland's investment assets can be determined
| Development | Investment | Market | |
|---|---|---|---|
| Assets | Properties | Value | |
| Enterprise Value | $$1,668m^{(1)}$ | \$7.507 $m^{(2)}$ | \$9.175m |
| Less Net Debt (3) | $(267)$ m | $(1,200)$ m | $(1.467)$ m |
| Implied Equity Value | \$1,401m | \$6.307m | \$7,708m |
| Property Investment Net Assets Less Net Debt Allocation (3) Implied Property NTA Implied Premium to NTA |
5,599 $m^{(4)}$ $(1,200)$ m 4.399m 43% |
- Mid point of range calculated under approach used by Grant Samuel $(1)$
- $(2)$ Difference between enterprise value based on \$6.09 Stockland security price and implied development asset enterprise value under Grant Samuel methodology
- Assumed pro-rata allocation between development assets and investment properties
- $(4)$ Per 30 June 2004 audited financial statements
- Based on this analysis, Stockland offered GPT around a 30% premium to NTA (depending on the ⋗ value of the consideration), using its own scrip which is valued at an implied 43% premium to NTA
Because Stockland's scrip is expensive, it effectively is not offering any premium to underlying value to GPT
GPT Unitholders are Being Offered a Discount for Control by Stockland
Stockland's Acquisition Offer -Stockland Seeks Control
Lend Lease's Merger Proposal -GPT Unitholders Keep Majority of Merged Entity
... And Lend Lease is offering a higher value to GPT unitholders
Lend Lease Provides a Superior Business Profile for GPT
Stockland Dilutes Quality of GPT's Asset Base
$\blacktriangleright$ Stockland properties have higher average capitalisation rates from independent valuations(1) reflecting lower quality properties
(1) As at 30 June 2004
(2) GPT retail properties includes Homemaker portfolio as one property
Combination of Stockland with GPT Dilutes Quality of GPT's Asset Base
Comparison of Shopping Centre ⋗ Portfolios
| GPT 010 | Stockland | |
|---|---|---|
| Shopping Centres | 15 | 40 |
| Average Book Value per Property Average Size Average Specialty Occupancy Cost |
\$232m 52,150 $m2$ 14.4% |
\$67m 21,955m 2 9.9% |
Excluding Homemaker Centres $(1)$
All GPT centres are managed by Lend Lease $(2)$
GPT's retail portfolio is predominantly ➤ regional shopping centres, whereas Stockland's is predominantly subregional and community centres
Comparison of Office portfolios:
| GPT | Stockland | |
|---|---|---|
| Total Office Properties | 14 | 34 |
| Average Book Value per Property | \$213m | \$57m |
GPT's office properties have a longer ➤ lease expiry profile than Stockland's
Proportion of Leases Expiring in Each Year(1)
Lend Lease Offers Greater Diversification By Activity
(1) Operating profit after tax, unallocated corporate costs, non-core investments and one off items (3) Based on operating profit per results presentation and annual report 20 (4) Based on net profit (distributable earnings) (2) Operating profit after tax and before interest amortisation and unallocated corporate costs
Lend Lease Offers Greater Geographical Diversification
(1) Operating profit after tax, unallocated corporate costs and one off items 21 (2) Operating profit after tax and before interest amortisation and unallocated corporate costs (3) Based on operating profit per results presentation and annual report (4) Based on net profit (distributable earnings)
Stockland's Development Risk is Heavily Concentrated on the Australian Residential Sector
$\triangleright$ Over 90% of Stockland's development income is from the Australian residential sector (virtually all residential sub-divisions)
(1) Land and apartment inventories per Stockland annual reports
Stockland Has Rapidly Grown its Australian
Putting the Bovis Lend Lease "Risk" Issue in Proper Perspective
BLL Profits Since Bovis Acquisition
- Leading UK Building and $\blacktriangleright$ Construction company
- Top 10 US Building and Construction company
- Major Australian Building and $\blacktriangleright$ Construction company
- $\triangleright$ Around half of Bovis Lend Lease ("BLL") earnings are not subject to pricing risk
Despite BLL Australian losses in 2004, Lend Lease still delivered 9% EPS growth due to the diversity and strength of its businesses
Only Lend Lease Offers GPT an International Growth Platform
$\triangleright$ Stockland would limit growth opportunities for GPT, given it has no activities outside Australasia
International Earnings(1) 2004
International Assets/Businesses
| Lend Lease | Stockland | ||
|---|---|---|---|
| UK. | REI, Bovis LL, PFI, Development |
UK: | None |
| USA: | None | ||
| USA: | Actus LL. Bovis LL. KoP |
Singapore: None | |
| Singapore: APIC, Bovis LL | Japan: | None | |
| Japan: | Bovis LL. | China: | None |
| China: | Bovis LL | NZ: | Joint interests with AMP in three shopping centres acquired with ADP in 2003 |
(1) Net profit after tax and before unallocated corporate costs
(2) Stockland reported revenues of \$21.8m from NZ (profits not
disclosed, but would be less than \$15m assuming 33% tax)
Lend Lease's Corporate Income is Much Bigger in Both Absolute and Relative Terms
Based on forecast NPAT contribution $(1)$
$(2)$ Excluding Corporate investment earnings
25
Only Lend Lease Provides International Retail Properties and Growth Profile
$\triangleright$ Through the merger, GPT unitholders will acquire a 59% interest in Lend Lease's existing international retail property assets:
| Country | Asset | Independent Valuation (1) @ 30 June 2004 (A\$m) |
|---|---|---|
| UK | Bluewater (31%) Chapelfield (100%) Overgate (31%) Touchwood (4%) Golden Square (50%) |
1,288 316 $(2)$ 110 23 (3) |
| US. | King of Prussia (50%) | 332 |
| Singapore | Parkway/Heartland (18%) | 51 |
| Gross Value | 2,120 | |
| Tax Payable if Bluewater held as Investment Property Bluewater Finance Lease |
$(155)^{(4)}$ (239) |
|
| Retail NTA | 1,726 | |
| (1) Includes direct and indirect ownership interests |
Book value. Subject to conditional forward sale agreement $(2)$
Acquisition completed post 30 June 2004 $(3)$
Mid point of range disclosed in Explanatory should intent regarding Bluewater change $(4)$
Grant Samuel's Lend Lease Valuation Highlights International Retail Property Upside
$\triangleright$ Grant Samuel's Lend Lease stand alone valuation:
| Low (\$m) |
High $(\mathsf{Sm})$ |
||
|---|---|---|---|
| Bovis Lend Lease Development Businesses Funds Management Business |
1,650 1,340 250 |
1,800 1,485 285 |
Bluewater/KoP combined value of \$1,155 - 1,290m compared to 30 June 2004 independent valuation (less Bluewater tax) of \$1,465m |
| Real Estate Investments Bluewater King of Prussia Other |
820 335 650 |
920 370 690 |
|
| Corporate Overheads Net Cash/other |
(730) 4,315 326 |
(800) 4,750 326 |
Based on Stockland's circa 40% premium to NTA, would be valued at over \$2 billion on enterprise value basis |
| Per Share | 4,641 \$11.64 |
5,076 \$12.73 |
Lend Lease Has Big Lead on Stockland in Key Growth Sectors
$\triangleright$ Lend Lease has well established businesses in two markets identified by Stockland as future growth prospects
Unlisted Property Funds
Retirement Lifestyle Business
| Owns Retirement By Design: |
|---|
| Owns and operates 12 retirement estates in Vic. |
| Established business with 20 year history |
Delfin Lend Lease's Performance is Demonstrably Superior to Stockland's Residential Business
⋗ The Delfin business model produces substantially better returns than Stockland's residential land development business
- $\triangleright$ As Delfin's strategy is based on large masterplanned communities ( $\triangleright$ 2,000 lots), its projects are long-term and around 15% of Delfin's earnings are from non-residential land sales (eg. Town Centres)
- Provides better forward earnings visibility
(1) Represents residential estates inventories for Stockland and inventories and investments in associates for Delfin Lend Lease
(2) 2004 EBIT (NPBT for Delfin Lend Lease) divided by average of 2003 and 2004 land inventories (and investment in associates for Lend Lease joint ventures)
How Will Stockland Produce Above Average Earnings Growth?
- $\triangleright$ Stockland's opportunities to produce above average EPU and DPU growth post any merger with GPT appear limited
- $\triangleright$ With 88% of net income from a \$13 billion-plus investment property portfolio producing circa 3% income growth, Stockland would need substantial corporate earnings growth rates
- For example, 20% corporate earnings growth would be required to deliver 5% overall growth if property income is growing at 3%
- $\triangleright$ Virtually all of Stockland's current corporate earnings are sourced from the Australian residential sector which appears to be experiencing some degree of cyclical downturn at present
Lend Lease/GPT Delivers Superior Management Expertise and Continuity
Only Lend Lease Can Provide Management Certainty for GPT
- $\triangleright$ Over 200 employees involved in the day to day management and operations of GPT Management Ltd are Lend Lease employees
- $\triangleright$ GPT's core business (regional shopping centres, premium and A grade office buildings) are outside Stockland's area of main expertise
- GPT's retail portfolio includes 9 regional shopping centres
- Lend Lease currently manages 11 regional centres for GPT, APPF and third party clients
- Around 70% of GPT's retail assets and 33% of its total assets by value are regional shopping centres
- 98% of GPT's office assets and 37% of total assets by value are premium and A grade buildings
- $\triangleright$ Stockland does not currently manage any regional shopping centres and has publicly stated at the time of its last takeover that its "Shopping Centre" Division management team has particular expertise in sub-regional assets" (Matthew Quinn: 28 May 2003)
Other Management Issues
- $\triangleright$ Lend Lease has managed GPT for 33 years
- $\triangleright$ Under Lend Lease's management, GPT has delivered a property portfolio of superior quality to that of Stockland
- Most of the assets in GPT (by value) were developed by Lend Lease
- $\triangleright$ Stockland's performance in managing sub-regional shopping centres is significantly below market average
- Average specialty occupancy cost of 9.9% vs sub-regional industry average of $12.8\%$ (1)
- Stockland's acquisition of GPT would involve significant integration risk ➤
- GPT has a \$200 \$300 million per annum retail development pipeline over ≻ the next four years including major projects at 6 regional centres
- Lend Lease has successfully delivered all of GPT's recent developments
- Does Stockland have the skills to manage the development of large regional shopping centres?
Lend Lease Has Much More Flexibility to Support Future Distributions Than Stockland
$\triangleright$ Stockland has limited retained earnings to support dividends in the event of any company earnings "shock"
| Stockland | Lend Lease | |
|---|---|---|
| Company Retained Earnings | \$84m | \$1,448m |
| Years Dividends at Current/Proposed Payout (1) | < 1 year | Approx. 5 years |
Assumes 90% for Stockland and 100% for Lend Lease $(1)$
- $\triangleright$ Lend Lease's substantial retained earnings base means that its capacity to ensure consistent distributions to investors, even with a 100% current year payout ratio policy, is far greater than Stockland's
-
Stockland's proposed acquisition of GPT would give rise to around \$1.9 billion of goodwill(2) which will be subject to an annual impairment test under IFRS
Pre-Emptive Rights Over GPT Assets
- $\triangleright$ Lend Lease has call options to acquire GPT's 49% interests in the Rouse Hill and Twin Waters masterplanned urban communities in the event of a change of control of either GPT or GPT Management
- Lend Lease would exercise these options if Stockland acquired control of GPT
- $\triangleright$ GPT's Responsible Entity does not have a unilateral right to replace Lend Lease as asset manager on jointly owned properties including shopping centres
Timing and Conditionality of Lend Lease Merger vs Stockland Proposal
- $\triangleright$ The Lend Lease/GPT merger is only subject to the security holder votes and procedural conditions and will be effective from 29 November
- Stapled securities trade deferred settlement from 7 December
- Merger distributions paid on 17 December
- $\triangleright$ The Stockland offer is subject to a large number of conditions which may or may not be satisfied
- Cannot close before January 2005
- $\triangleright$ The timing of the Stockland offer is uncertain as it depends on when conditions including minimum acceptance are satisfied
The Lend Lease Merger is More Tax Effective For GPT Unitholders
- $\triangleright$ Under the Lend Lease merger:
- No capital gains tax will arise on the creation of stapled securities
- The special distribution will be treated as tax deferred (ie. taxed as a return of capital)
- $\triangleright$ The tax outcomes from the Stockland offer are unknown but will be less favourable:
- If Stockland achieves more than 50.1% but less than 80% acceptance, rollover relief will not be available and full capital gains tax will apply
- If rollover relief is available, this will only apply to the unit component of the Stockland stapled securities and GPT unitholders will be subject to capital gains tax on the share component of the Stockland stapled security