GPT turns to investment management despite hit from sliding offices

The diversified property trust is looking to boost returns by setting up more partnerships in key property segments in order to boost returns.

Liberty Place in Sydney.

Diversified property trust GPT Group has flagged that it will push more deeply into investment management by looking to capitalise on the demand for logistics real estate from large superannuation funds and offshore pension funds.

The group, headed by new chief executive Russell Proutt, has flagged that it wants to grow its overall $34.4bn empire, which includes both its balance sheet and funds holdings, into a larger enterprise by setting up partnerships using both its existing buildings and new assets.

GPT was still hit by writedowns on its office portfolio in this half, and it is paying out incentives to keep tenants, but said that it would be patient and look to boost occupancy of its towers. The group’s shopping centres are also performing well, while logistics is also seeing strong growth with new developments adding to its holdings.

The declines in the value of the trust’s office portfolio drove it to a $249.4m headline loss in the last half, but it said its strategy of pushing into logistics and funds will pay off longer term.

GPT had investment property valuation declines of $566.8m but other metrics show that it is on track with Funds From Operations of $309.1m or 16.14c per security, and it will pay an interim distribution of 12c per security.

“We have outlined our plan to position the business for long-term growth by focusing on building our investment management platform,” said Mr Proutt, pointing to a series of mandate wins over the last year, including one to run the Commonwealth Superannuation Corporation portfolio in April.

“GPT has a very strong and sound foundation from which to grow,” he said.

GPT Group boss Russell Proutt.

Mr Proutt said GPT’s first half performance reflected the strength of its diversified portfolio, adding that the company was on track to deliver on 2024 full year guidance provided earlier in the year.

“With a $34.4bn management platform, including $22.1bn across funds, partnerships and mandates, and deep operational capability, our business is in an excellent position to meet the challenges and opportunities of the market,” he said. “Over the past two years, our funds under management have grown significantly, with additional mandates and partnerships being brought on board with investor partners.”

GPT is now being positioned as a funds manager rather than as a landlord with hefty balance sheet requirements. “This is an evolution of our strategy, with an acceleration and emphasis on our investment management segment,” Mr Proutt said.

It wants to lift returns on capital from its business and believes it also growth earnings for its security holders by going down this path. GPT, which itself was spun out of Lendlease, has a near two decade record in funds management, and it runs office and retail funds.

Overall, GPT had office occupancy of 92.4 per cent at the end of June, and it is re-signing tenants successfully, but it was hit by a 10.4 per cent net valuation decline as higher interest rates have driven a blow out in capitalisation rates.

Mr Proutt said there was a focus on managing office vacancies, and incentives would return to more normal levels as the cycle went on. He said the shopping centres were performing, and the group had plans to redevelop Sydney’s Rouse Hill and Melbourne Central.

Logistics makes up about one-third of GPT’s portfolio, and it will set up partnerships in this area, with Mr Proutt saying it was a “clear priority” to grow in that area. He said the trust could start with seeding partnerships with its own assets.

“Given the quality of assets on our balance sheet across the sectors, it’s a good catalyst to engage with partners,” he said. “We have to evolve into much more of an active investor … but in the initial phase there will be a level of catalysing with our own balance sheet assets.”

GPT expects to deliver Funds From Operations of approximately 32c a security and a distribution of 24c per security over the full year.

Citi analysts said GPT’s result was better than expected with continued momentum in retail and logistics portfolios, and better than expected outcomes on office occupancy. They said that investment management was a key area of growth and focus for the business moving forward.

GPT securities rose 2.2 per cent to $4.78 in a broadly flat market.