25/02/2010 - 00:00

Listed players reveal year of mixed results

25/02/2010 - 00:00


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WHEN the global financial crisis hit less than a year after listed property developer Peet had paid $300 million for a 243-hectare land parcel at the northern fringe of Perth, many questioned the wisdom of that purchase.

Listed players reveal year of mixed results

WHEN the global financial crisis hit less than a year after listed property developer Peet had paid $300 million for a 243-hectare land parcel at the northern fringe of Perth, many questioned the wisdom of that purchase.

With a crash in property prices anticipated following the market tumult in October 2008, many developers faced being caught after an acquisition binge funded mostly by debt.

But Peet managing director Brendan Gore believes the decision has paid off.

As markets return to normal, the price for such a strategic parcel of land, including almost two kilometres of Indian Ocean frontage, looks reasonable, Mr Gore said.

He added that, not only was the transaction funded off balance sheet by one of its syndicates, but the deal had also taken Peet into the wholesale market for the first time.

Despite the market criticism at the time, Peet has sailed relatively smoothly through the GFC’s troubled waters, raising $77.7 million in equity in the latter stages of 2008-09.

It is noticeable from the news and announcements in the past six months that Peet appears to be more of a business-as-usual operation than some other developers, which had hit debt-related turbulence.

Mr Gore said a market shake-up was occurring because banks were holding back funding from many smaller players.

“There will be consolidation in our space,” Mr Gore told WA Business News.

“I think it will create opportunities in either buying assets or asset portfolios from distressed sellers or sellers who have land but are not able to develop.”

This consolidation, however, was not expected to be between different listed property groups where there was little advantage in mergers and acquisitions.

Instead, there had been a surge of smaller players beating a path to its door since Christmas as minor landholders had realised they did not have financial or administrative muscle to develop while their debt costs kept mounting. Mr Gore welcomed such opportunities.

Locally based private developer Satterley Group chief Nigel Satterley also confirmed that, as part of their work out program, banks were encouraging financially stressed developers to turn to the bigger players.

“In the case of good people, the banks send them to us,” Mr Satterley said.

Perth-based Peet is a heavyweight land developer like Satterley. Other big players in the WA market are Stockland, Delfin Lend Lease, Australand and Mirvac, although most of the big east coast players that operate here are more diversified.

Delfin, a subsidiary of listed real estate giant Lend Lease, has launched its first foray into WA by winning the Alkimos development contract from LandCorp, beating off Mirvac and Satterley.

Stockland has emerged from the market uncertainty to start picking up new projects, including a recent deal to take a 50 per cent interest in a big sliver of Alkimos land in partnership with the owner Martin Copley’s Eglinton Estates.

However, there is a price for the tough decisions big companies sometimes make. At least one customer at its upmarket South Beach development has complained to WA Business News that Stockland had been discounting land to keep up sales.

Below that top tier are several smaller WA-listed entities such as Cedar Woods, Port Bouvard and Axiom, which are similar-styled property developers with elements of diversification across the sector.

Luke Saraceni is a big private operator in this space. Aspen is seen as more of a fund manager/developer, while Finbar and Diploma have a building bent as part of their development strategy.

Of those listed companies, Port Bouvard has had the most troubled past six months.

Last October it announced that its shares were to be suspended while it attempted to refinance debt, which had fallen due at that time without being renegotiated.

Market observers believe it must have been touch and go at this time, given the bank, St George, allowed the matter to become public before it eventually stepped in to refinance.

At Port Bouvard, shares remain untraded in the intervening period while it has restructured its management – including losing joint managing director Matthew Perrott – and appointed Euroz and Macquarie Bank to assist it with a capital management strategy.

The $167.6 million refinancing deal allowed Port Bouvard to keep progressing development of its major WA assets – the Oceanique apartments at Dawesville, the Point Grey land on the eastern side of Peel Inlet, and a township project at Gidgegannup.

Interestingly, before the trading suspension, Kingston Capital, a West Perth firm linked to several financial advisers, emerged with a 10.5 per cent stake.

As with Peet’s acquisition, there was significant market speculation that Port Bouvard had paid too much for some its recent land acquisitions. Some in the market, though, question the comparison between Port Bouvard’s regional land holdings with Peet’s coastal strip in the northern corridor of Perth.

Aspen, too, has faced criticism this year as it attempted to shore up its financial position. It successfully raised more than $80 million through a capital raising during the year, which was used to secure enhanced senior debt facility terms with financier, National Australia Bank.

One of its funds, the Aspen Diversified Property Fund, suffered a particularly turbulent year after it was caught with high levels of gearing as credit markets froze.

Nevertheless, it refinanced last December and recommenced work on some deferred development work.

In contrast, Cedar Woods seems to have managed without the big hiccups of its competitors.

Claiming to have made its key asset purchases before prices boomed, it said it avoided a major equity raising during the worst of the GFC uncertainty. Recent announcements show it appears to have been able to capitalise on this period of distraction for others by concentrating on sales and making new land acquisitions.

Most of these players have signalled that the worst of the property market is behind them, and the best placed are already making acquisitions.



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