Does GPT really want Lend Lease in control, given the latter’s destruction of shareholder value in the past five years?
Why is there a feeling that the Lend Lease proposal to ‘staple’ GPT
shareholders to its own will prove to be of longer lasting benefit to
that company and not GPT and its unit holders?

And why, when compared to the rationale behind the proposal from
Westfield for stapling, and the prospects for the merged Westfield
group, is there another conclusion that Lend Lease still remains behind
the game when it comes to taking control of its future. That Lend
Lease, after its poor performance of the past five years, is a company
still not fully trusted by investors.

Gone is the company that was on the front foot in corporate
developments, taking over MLC years ago, spinning off GPT to separate
income streams and provide a better tax treatment for shareholders,
plus the superior employee relations model pioneered by Lend Lease
founder Dick Dusseldorp and his successor, Stuart Hornery (“Ornery
Hornery” as he was affectionately known at Lend Lease).

The Lend Lease proposal has a big dose of ‘meetooism’ and catch-up
about it, that it was only decided upon after Westfield went public
with their deal. And there seems to be a belief implicit in the deal;
that whatever synergies Westfield and the Lowy-led management can
extract there, will be automatically repeated at Lend Lease.

Both Alan Kohler and Stephen Batholomeusz made good points in their
columns today in the Fairfax press, while in Chanticleer in the AFR,
John Durie posed some nice questions about the proposal and the mooted
benefits.

But you’d have to reckon that, in the absence of another bid, that GPT will fall over into the arms of Lend Lease.

So will Stockland and Mirvac take a dip at GPT and confirm themselves as kings of the trust castle in Australia?

There’s a feeling that Lend Lease only decided to go down this route
once Westfield had legitimised it. Mirvac’s move was apparently not a
strong enough precedent. Yet Lend Lease now uses Mirvac’s move to
justify why it should now happen with GPT.

GPT unitholders should consider three points. What’s in it for us? Will
falling into the arms of Lend Lease mean more upside when Lend Lease’s
recent record is appalling, and will our assets be better run by having
Lend Lease in control, rather than the existing GPT board and
management?

Admittedly there are three Lend Lease representatives on the board
because of the management deal, but there’s a good case to be made that
GPT has had a better earnings profile in recent years than Lend Lease,
and has a much stronger business plan and more sturdy asset base than
its sponsor.

Which should lead to another point, who benefits more from this
transaction, Lend Lease shareholders and managers, or GPT unitholders
and managers? Whose profits and distributions have grown? GPT’s have.
Lend Lease has spent the past five years lurching from one crisis to
another.

In America, in Britain in Australia. Overpaying under performing
executives, a poorly-executed strategy to become an international
player in property management and construction, especially in the US
where it had no size, no clout and came up against a group of operators
who make sharks look benevolent when it comes to doing property deals.

Lend Lease got $4.3 billion from the National Australia Bank for MLC. Most has been wasted on the poor international strategy.

From comments made by Lend Lease CEO, Greg Clarke, the strategy this
time around is, well global, creating a well-balanced and integrated
set of property assets.

What’s this, second time lucky? It’s a big risk for GPT unitholders.
They face a steady, reliable yield driven income being made more
uncertain by currency changes, poor investment decisions and poor
execution of strategy.

GPT’s risks are leveraged to Australia, its investments are understood by local investors. They want the steadiness of yield.

Lend Lease is still very much an unknown quantity. Greg Clarke and the
board have spent 18 months cleaning up the mess left by for CEO, David
Higgins and the board (led by former Chair Jill Kerr Conway).

That in itself should set off alarm bells for GPT unitholders. Are all the problems now out in the open?
A certain fuzziness in logic was evident in the statement from Lend
Lease where it suggested that GPT could find growth in Australia in the
sort of residential deals being done by Delfin Lend Lease.

For the next few years residential property in Australia (and in the US
and UK and parts of Europe) could very be the sector to avoid if there
is any crash in prices and a slump in activity. It might be a place
where bottom fishing is a clever strategy rather than greenfield
developments.

Residential development greater risks, and rewards. But for a group
built on a safe, steady yield driven approach to investment, can GPT
become a residential property developer, even with Lend Lease’s help?

You’d have to say Lend Lease’s record in recent years is patchy.

If you compare the performance of Lend Lease shares and GPT units over
the past five years, GPT’s wins for hardly moving from its present
level of between $3 and just under $4 a unit. Look at Lend Lease and
the share price has more than halved in the same time, from $24 to just
under $11.

The destruction in shareholder value has been significant. GPT will help end that uncertainty
Adding those safe, steady earnings from GPT will benefit Lend Lease
shareholders than adding the erratic earnings from Lend Lease will do
anything for existing holders of GPT units.

Then there’s the Bovis construction arm. Yes, it is helpful having an
in-house development arm. It means you can choose where to take the
profits, in the development, building or selling part of the deal.

But in house construction arms don’t necessarily mean better and
cheaper uses of capital. Nor does it mean competitive prices for
buyers. The Commonwealth Bank’s funds managers caught GPT nicely,
putting in a change in substantial shareholding notice Tuesday morning
showing a lift in its holding of 20 million units from 119.4 to 139.8
million. That gives the CBA 6.93% of GPT.

And finally, its pleasing to see that Macquarie Bank has finally got a
gig in these deals, advising GPT after missing out in the Westfield fee
bonanza, while ABN Amro and Carnegie Wylie are helping Lend Lease.

It’s a silly question I know, but will the Maccas ever join the trend and staple their trusts?

Peter Fray

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