GPT plans $900m exit from tourism

Author: Ben Wilmot
Date: 18/07/2008
Publication: The Australian Financial Review

Listed property trust GPT Group has put its landmark tourism and hotel portfolio on the market, with expectations a sale will generate more than $900 million.

The group has been under pressure to sell assets after revealing a shock 27 per cent earnings downgrade this month and a dramatic cut in its distribution, which prompted widespread investor criticism of chairman Peter Joseph and chief executive Nic Lyons.

GPT's portfolio of hotels and resorts includes landmark properties such as the Ayers Rock Resort near Uluru and the Voyages Lodges portfolio of eco resorts.

Voyages' key properties include Bedarra, Lizard and Heron islands in Queensland, as well as Cradle Mountain Lodge in Tasmania, Wrotham Park in North Queensland, and El Questro Resort in Western Australia.

Staff were told of the decision to sell the portfolio yesterday and the sale is expected to be announced today.

The tourism portfolio comprises about 7 per cent of GPT's overall assets but the resorts have underperformed in recent years and GPT recently slashed its guidance on earnings from the tourism assets for 2008 to $42 million from $57 million.

The group's management blamed the strong Australian dollar, higher fuel prices, aviation capacity reductions and weaker consumer confidence for the fall-off in the Australian tourism market.

GPT chief operating officer Michael O'Brien told the AFR last night that the portfolio was non-core.

"It's a portfolio that is relatively small . . . if you look at GPT as a whole," he said.

"While it's done well for us most of the time we've owned it, it's quite volatile," he said of the earnings from the hotels and resorts.

Mr O'Brien said GPT would concentrate on portfolios that were orientated to property ownership, funds management and development.

"Hotels, we feel, doesn't quite fit that model.  We would have taken this decision regardless of the decision we made last week," he said.  "It's consistent with where we want to take the group."

In Sydney, GPT owns the Four Points by Sheraton Hotel, a large four-star hotel located near Darling Harbour.  The hotel is performing strongly on the back of the healthy business travel market, and the price of Sydney hotels has also surged this year.  The hotel is operated under a licence agreement with Starwood Hotels & Resorts, and GPT values the hotel at $232.4 million.

Voyages Hotels and Resorts, GPT's resort management business, operates the resort assets.

GPT moved into tourism with the acquisition of Ayers Rock Resort in 1997 and put its investment in the sector at close to $900 million at December 2007.

Ayers Rock Resort is valued by GPT at $438.9 million.  The resort, located on 94 square kilometres of freehold land, has the full range of tourist accommodation, from deluxe hotels to camping grounds.  It has 930 rooms.

The Voyages Lodges nature-based resorts span 10 locations in or near world heritage-listed areas of natural significance such as the Great Barrier Reef.  The portfolio comprises 662 rooms and GPT values them at $217.5 million.

Jones Lang LaSalle Hotels will market the assets.

GPT securities added 8.6 per cent yesterday after falling 43 per cent since it came out with its earnings downgrade.  GPT's $7 billion international property joint venture with investment bank Babcock & Brown will be wound up early. In better times the pair considered combining their hotel assets in a $2 billion float but this did not proceed.

The market for hotels in central business districts has held up surprisingly well in the face of the credit crunch but the many resorts are struggling because of cuts to airline services and lower discretionary spending.

Hotel analyst Dean Dransfield said yesterday that Australia's hotel market was likely to continue to perform well in the short term.