Well, I looked at the updated balance sheet from the recent FY08...

Well, I looked at the updated balance sheet from the recent FY08 figures.
It lists
Assets: 13b
Borrowings: 5b
Other LIabilities: 1.2b (Not sure what these are - no note!)

Net Assets: 6.8b

The asset headline of 13b includes:
450m Core Australian
250m Hotel/non core
700m BNB JV
Total writedowns: 1.5b or about 11%....

Now... how much more of a red line are we going to put through these remaining assets...

Lets do the following:
BNB JV: 1.2b (write down to 0)

That leaves net assets of 5.6b or 5.6/4.4 = $1.27 / share

The borrowings component of the liabilities is 5b - so this is what we will use to test the covenants.

Taking the JV out completely leaves us with 11.8b of assets. So far so good on the 50% covenant, 5/11.8 = 42% ...

As soon as we strip back the remaining assets, we test the covenants. Taking a further 30% from the 11.8b kills the company - but I don't believe thats a real proposition anymore than all depositors withdrawing from the ANZ next week....

GPT has about 1.8b of headroom up its sleeve before the covenants are tested. Thats the long and short of it. This is about 2.8b if we leave in the JV assets.... There is no debt due until late 2010 - and domestic rents are strong, even increasing....

As for earnings - I dont think anyone is questioning these. One thing GPT DOES know how to do is collect rent.

The big problem with selling hotel assets now as I see it is as follows.
The hotels used to contribute some $75m to earnings...
This year my reading shows them contributing maybe $30m to earnings.
The asset has been revalued downwards to about 700m odd.
Lets say they only sell it for $600m... how will that impact balance sheet?

Assets will become:
11.8 - 700m (current valuation) = 11.1b
Borrowings will become 4.5b
Gearing becomes 40.5% - great 1.5% better and a really nice irreplaceable asset sold for hardly any gain... not very pretty at all... but if the back is to the wall, the back is to the wall....

My understanding is that GPT need to value assets twice / year - and keep the bankers happy. They have just done that - so the next time will be in July.

Bottom line as I see it is if in July borrowings stand at 5bn and Assets drop a further 10% from present levels, then a 50% covenant is in danger of being breached...

For this to happen though the following must all occur:
- The JV must be worth $0... thats a long way off from the $1.2b that Mr. Banker appears to have accepted last week as a fair value
- Domestic properties must be revalued 10% or more lower than present, quite possible? But the argument against it is in a healthy rent basis that appears to be increasing.

/end rant.
Not sure where it got me nor if I feel better or worse after writing it. I hold and cannot see any parity in present valuations with intrinsics other than factoring in a risk premium that is currently offering value at a 70-80% discount.