Looks like we are not the only one being confused about the NTA...

Looks like we are not the only one being confused about the NTA of GPT. Its been overdone and we should see it heading back up soon as there wasn't any new nasty surprises that caught us by surprise.

In the next 2 weeks we should see:

-IR cut
-Dividend of 4.2 cents
-Expression of interest in their hotel/resort assets

This will keep GPT in the spotlight. Lets hope they can redeem their past mistakes.


Robert Gottliebsen

Taking an axe to GPT
TOP News

When GPT first announced their results to the market the stock fell to $1.57 but over the course of the session the stock has recovered some ground to close at $1.68. Meanwhile, the asset backing of the company is $3.68. Nic Lyons, chief executive of GPT, says that a share price level which has GPT at about 50 per cent of net tangible asset value is “unsustainable given the quality of the GPT underlying asset base”.

At this stage the only way to look at GPT is on an asset basis and I must say that while these sums can be calculated from the balance sheet it was not easy and I required some assistance from the company. They should have been highlighted in the result.

On the basis of issued capital, there are 2.2 billion stock units which means that the company is saying that it has net tangible assets of $8.1 billion. Which is in line with the balance sheet.

Now of those net tangible assets $2 billion is in the European Babcock & Brown joint venture, including about $1.7 billion which is owed to GPT by the joint venture. It should be remembered that the GPT stake in the joint venture of $2 billion has been geared up with another $2.2 billion in loans that are non-recourse to GPT.

These loans do not appear on the formal GPT balance sheet, but are mentioned in a note. I think it fair to say that the market places no value on its $2 billion investment in the joint venture although GPT strenuously denies this assumption. Lyons says that it is almost inconceivable that there will not be a substantial amount of its $2 billion investment will be recovered.

But without making a judgement ourselves, let’s assume the market is right and that the European assets have no value. That brings the net assets of GPT down to $6.1 billion – an asset backing of $2.77.

That $6.1 billion consists of gross assets of just under $11.8 billion and liabilities of $5.7 billion. Of the $5.7 billion in liabilities, $4.2 billion is borrowings including $1.15 billion due within a year. Having eliminated the European assets from calculation, the sharemarket has taken to the Australian assets with an axe.

On the basis of a $1.65 price the market is saying that the Australian assets are worth only $3.6 billion – a $2.5 billion discount on the revised net asset value of $6.1 billion once we have taken into account the European assets. So for the market to be right, the gross value of the Australian GPT assets of $11.8 billion would have to decline by $2.5 billion or about 21 per cent.

The company is being pummelled. GPT has about $1.7 billion in assets that it is prepared to sell but is really only aiming to sell $500 million. As I pointed out in Centro's cliff-edge ride, August 27 there is at least $15 billion in Australian assets that are tentatively for sale and buyers are scarce. We are going to see a decline in asset values.

In January 2009, GPT says that it is going to receive a $163 million payment from the Babcock & Brown joint venture as a result of asset sales that have been signed but not yet settled. If that money arrives safe and sound then it will be clear that there is still value in those assets. It took some time but as the market began doing these sums a view emerged that the selling may have been overdone.