Unitholders Approve GPT Self-Management Plan

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SYDNEY-General Property Trust’s self-management proposal won out over an alternative proposal put forth by Lend Lease, which has managed the trust’s $9 billion of shopping center and office assets since 1999. A vote for either proposal was to result in GPT being self-managed, but by approving GPT’s own plan unitholders signed off on a pair of controversial transactions that GPT claims are necessary to effect the transition and that Lend Lease claims are bad for unitholders in the long run. Back in February, GPT proposed self-management as part of a plan to counter a takeover attempt by Stockland Group. Under the proposal, now approved, GPT will sell interests in three GPT retail centers to Westfield–including Sydney’s Penrith Plaza, the third-most productive shopping center in Australia–and use the proceeds to fund a joint venture with Babcock & Brown Ltd., Australia’s second biggest publicly traded investment bank. In addition, the plan will give unitholders a 16.5% increase in distributions in 2006.Lend Lease officials ultimately spoke in favor of GPT managing itself–a change that will cost it an estimated $65 million in fees annually and more in development revenue–but spoke out against GPT’s plan, saying in public statements that it had “numerous flaws,” a position that was backed by independent third-party analysis. Lend Lease said those flaws include the sale of GPT’s prime retail assets to Westfield (a 6.5% unitholder in GPT) at “a discount to true value” and the Babcock & Brown JV, which Lend Lease believes will take GPT into new markets with “a disproportionate level of risk and lesser rewards.” “The inseparable package of deals that GPT management has tied into its proposal is, in our view, not in GPT unit holders’ interests,” Lend Lease’s Group CEO Greg Clarke was quoted as saying. GPT independent chairman Peter Joseph maintained that GPT’s proposal offers unitholders higher growth and value than the Lend Lease alternative. As an alternative, Lend Lease said publicly that if unitholders reject the GPT proposal it would support an internalization that didn’t include those transactions by providing its management services at cost–with no incentive or performance fees–until the internalization is effected. That offer is no longer on the table, but Lend Lease and GPT have reached agreement on key aspects of the transition. Key elements of the transition agreement include:

• Employment offers by an internalized GPT to Lend Lease Retail employees who predominantly work on assets 100% owned by GPT.
• Continuity of access and use of Lend Lease IT systems and IP for asset management, funds management and other operations until GPT has established independent systems.
• Termination of the Property Management Agreements and transfer of the Property Management businesses associated with assets 100% owned by GPT.
• Lend Lease will not exercise its pre-emptive rights on the Rouse Hill and Twin Waters joint ventures with GPT, and GPT will make a further investment to move from 49% to 50% ownership of these projects.
• GPT will make a payment to Lend Lease of $16.5 million (excluding the increased investment in the Rouse Hill and Twin Waters joint ventures) for the interim use of its IT systems and IP for asset management and funds management.

According to published reports out of Australia, by Monday GPT will be moving staff into its new offices in Sydney, with about 30 key retail property managers, formerly employed by Lend Lease, transferring across.Although Lend Lease lost this fight, investors apparently still have confidence in the retail team that will remain. The company said its new baby, the Australia Prime Property Fund Retail, was oversubscribed for its $200-million institutional equity raise this week. The equity raise follows the A$160 million buyout of Greensborough Plaza in Melbourne last week. The equity commitments take the total equity raised in the past 11 months to more than $870 million. “APPF Retail is now fully funded with an exceptionally strong balance sheet and, accordingly, will be temporarily closed to further equity raisings, subject to future acquisitions,” said APPF fund manager Philip Ling in a prepared statement. However, Ling added that Lend Lease might raise additional equity should APPF exercise its pre-emptive right over the 25% share of Sunshine Plaza, which GPT plans to sell to Westfield Group as part of its self-management plan. The new equity will fund the A$660-million redevelopment and expansion pipeline of projects for its portfolio of interests in eight super regional and regional shopping centers. Over the last five years, APPF, working in conjunction with Lend Lease, has initiated over $290 million in center redevelopment works that on completion were achieving an average yield of 8% per annum. “This record, together with a total return of 17.5% for the year to March 2005 and market leading returns for the 3 and 5 year periods as well, have made APPF highly attractive to institutional investors seeking long term, direct exposure to quality retail assets,” Ling said.Concurrent with the GPT vote, Moody’s Investors Service lowered to Baa3 from Baa2 the senior unsecured ratings of Lend Lease Finance Ltd and Lend Lease (US) Finance Inc., both wholly owned and guaranteed by Lend Lease Corp. Ltd. Moody’s says the downgrade reflects the lower annuity income and possibly lower future development work for the company’s construction business related to its loss of the GPT management business, and the company’s evolving business strategy and financial profile. “The Baa3 rating continues to reflect Lend Lease’s solid market position and track record in its construction and project management business…and the stable annuity income generated from its management of retail funds and assets as well as investments in several high quality shopping centers in the UK and US,” Moody’s states in its announcement. “At the same time…with the loss of its GPT management rights, Lend Lease will exhibit a higher concentrated level of exposure to the cyclical and volatile property construction and project management operations.”