GPT Group swings to $240m annual loss as commercial values cool

The $8.37bn property group is hopeful that interest rates hikes have peaked, and the market can get back to normal.

GPT Group’s departing CEO Bob Johnston. Picture: James Croucher

The management of diversified property trust GPT Group expressed hopes that the interest rate cycle has peaked as it swung to a $240m full-year loss.

The company’s last result under departing chief executive Bob Johnston was marred by it taking a $819m hit to the value of its commercial property portfolio.

But he leaves the business on track as it has forged deeper into logistics markets, picked up fresh funds mandates and seen its malls recover, even as offices lag.

GPT was upbeat on the outlook, saying that while the full impact of the Reserve Bank’s aggressive rate rise cycle was yet to fully flow through the economy, it appeared interest rates may now have peaked, with consumption slowing and inflation trending lower.

Lower rates would reign in the finance costs that hit the results and the rising capitalisation rates which are forcing property writedowns.

Investors are still concerned about property values, and GPT securities fell 24c on Monday to close at $4.31 each.

The company’s result was a reversal on last year’s $469.3m profit, which was earlier in the property cycle, and it wrote down its portfolio by $159.3m at the time. But property leasing is still ticking over and GPT’s Funds From Operations came in at $600.9m, a slight drop on last year’s $620.6m, and in line with guidance.

While the office market has been hit, the company has moved deeply into logistics and is undertaking big projects with local and foreign backers. It is also running a 5,000 bed student accommodation portfolio for Canadian fund QuadReal and the Commonwealth Superannuation Corporation just tapped GPT to run a mall portfolio.

Mr Johnston will exit at month-end and former Charter Hall executive Russell Proutt will take the helm, with some strategy changes expected to follow.

The exiting chief said the group had delivered a solid result for the year. “FFO and distributions per security were in line with guidance provided at the beginning of the period, however, a softening in valuation investment metrics resulted in a 5.1 per cent decline in the valuation of GPT’s investment portfolio,” he said.

The retail assets delivered, boosted by the strong performance of Melbourne Central. Malls had positive leasing spreads and retained high occupancy, showing the demand from retailers for space in quality centres. Despite the challenging office leasing market, GPT did over 130,000 sq m of leasing during the year, resulting in occupancy including heads of agreement lifting to 92.3 per cent.

“The office market remains challenging given the changes in work practices including remote working, elevated market vacancy and new supply,” Mr Johnston said.

GPT’s logistics portfolio had strong results for the period, with leasing spreads at nearly 40 per cent and five developments completed. A logistics venture with QuadReal is growing, and it is also undertaking a major project with local fund UniSuper.

The group’s shopping centres also had strong tenant demand and high sales productivity, with high occupancy and forecast new market supply of retail floorspace relatively low, and it expects top centres to do well.

But it warned that offices are likely to remain challenging due to elevated market vacancy and subdued demand. The group called out the impact of higher incentives on its balance sheet and funds. GPT expects to deliver more industrial sheds subject to getting planning approvals.

GPT said it expects to deliver 2024 Funds From Operations of approximately 32c a security and a distribution of 24c per security.

UBS analysts said GPT had produced a solid result, with the retail portfolio a highlight and office leasing ahead of low expectations. They said the trust’s guidance was ahead of expectations, but the quality is lower than the previous period.

They noted its wins in funds management and said the focus now turns to the new CEO, who starts in March.

Originally published as GPT Group swings to $240m annual loss as commercial values cool