GPT upgrades as shopping bounces back

Diversified property trust GPT Group has pointed to the ongoing strength of the logistics market and the retail recovery as it delivered an upbeat outlook.

Diversified property trust GPT Group has pointed to the ongoing strength of the logistics market and the retail recovery as it delivered an upbeat outlook and upgraded guidance.

The group’s units jumped by 4.88 per cent in early trade to $4.51 as its interim earnings beat expectations and it flagged it was on track for the full year despite concerns about rising interest rates and the slowing economy.

“The group delivered a solid result in the half, despite the ongoing impacts of the global Covid-19 pandemic and the uncertain economic environment driven by high inflation and rising interest rates,” GPT chief executive Bob Johnston said.

Despite uncertainties from Covid-19, GPT’s retail portfolio performed well with retail sales back to levels above pre-pandemic levels across most assets.

Mr Johnston said retail portfolio had been a big contributor but all sectors delivered upside. “We’ve got development completions in logistics generating upside as well,” he said.

“I think the surprise has been the strong performance of our retail portfolio and, in particular, the occupancy and the growth that’s been generated,” he said.

“It certainly has been a return to physical shopping,” he said. “There has been a significant swing back to people visiting shopping centres.”

Mr Johnston said strong leasing outcomes had resulted in retaining high portfolio occupancy and leasing spreads continued to improve. The trust’s Melbourne Central complex has lagged but GPT said the gradual return of CBD workers was resulting in sales across most categories being close to pre-pandemic levels.

Leasing activity across the office portfolio improved in the June quarter, with 51,900sq m of space being leased or under heads of agreement during the first half. Most of the action has been at the smaller end but there was more inquiry from mid-size and larger tenants.

“Ongoing structural tailwinds in the logistics sector saw continued momentum in tenant demand, driving vacancy rates lower and resulting in strong market rental growth,” Mr Johnston said. The company’s logistics portfolio kept up its occupancy and GPT is also rolling out new projects with Canadian backer QuadReal.

GPT Group, led by Bob Johnston, booked a solid interim result, despite the ongoing impacts of the global Covid-19 pandemic and the uncertain economic environment. Picture: James Croucher

In a busy first half, the GPT Group turned in a net profit of $529.7m – down from last year’s first half of $760.5m – as it reaped a smaller $219.5m lift in the value of its investment portfolio.

Funds From Operations lifted from $302.3m in the first half of 2021 to $326.5m in the first half of 2022, which equated to FFO per security of 17.04c and an interim distribution of 12.7c per security will be paid.

The group is geared at 27.3 per cent, a weighted average cost of debt of 2.5 per cent for the period, and a weighted average debt term of 6.3 years.

GPT had wins in funds management and UniSuper selected it to manage its $2.8bn direct real estate mandate, with management to kick off in September.

GPT expects to deliver 2022 FFO of about 32.4c a security and a distribution of 25c a security for the full year.

Citi analysts Howard Penny and Suraj Nebhani said the interim results were ahead of consensus with Funds From Operations per share up 9 per cent. They added that GPT’s guidance was ahead of consensus.

The noted that finance costs were up 22.1 per cent year-on-year for the half but this was positively countered by logistics and funds management which were both up a meaningful 20.8 per cent and 15.1 per cent respectively. Retail was up a more muted 3 per cent and office up 10.7 per cent as a result of reduced vacancies and acquisitions.

Macquarie analysts said that given the beat in the first half of 2022, it was “no surprise” GPT had upgraded guidance.

“While rising interest expenses are likely to be a headwind, we expect continued recovery in retail and a lack of rent relief will provide key offsets through fiscal 2022,” Macquarie said.