Weak Retail Hits GPT Group Bottom Line

ASX-listed property fund GPT has been hit again by lower valuations gains, decreasing net profits by 39.4 per cent according to the group's latest interim report.

This result compared to $1,452 million last year however funds from operations grew 2.6 per cent and distribution per security grew 4 per cent.

Despite a weaker retail environment GPT Group's performance was offset by logistic and office segments.

The GPT $2.4 billion logistics segment like-for-like income grew at 3.3 per cent and new land holdings were secured including a $100 million Kemps Creek property near the new Western Sydney Airport and a $334 million Truganina property west of Melbourne both on deferred settlement terms.

GPT also made moves in the $6.1 billion office segment growing $271.2 million, with rental growth contributing more than half of that increase.

MLC Centre was divested for $800 million to purchase a 25 per cent share of the Darling Park 1 and 2 for $531 million—two premium grade office towers and an entertainment precinct at Cockle Bay Wharf.

Meanwhile GPT's office project 32 Smith Street in Parramatta remains on track for completion at the end of 2020 .

In retail, profits were down $46.1 million from the $6.3 billion portfolio with like-for-like income growth at only 1.2 per cent.

In the past year GPT completed a development at the Sunshine Plaza, new dining precincts at Charlestown Square and Melbourne Central and also gained approval for development proposals for $70 million Melbourne Central project and $200 million Rouse Hill Town Centre to commence this year.

UBS CFA analysis Grant McCasker said the key drivers of subdued returns were lower cinema turnover rent and longer downtime on releasing.

“The expectation is that these items will not improve in 2020,” McCasker said.

“In regards to retailer administrations GPT has 45 tenancies of which they expect 20 will close.

“In addition there was a $3 million hit to net operating income from asset enhancements which should reduce in 2020.”

GPT chief executive Bob Johnston said the group had a successful year as funds from operations was up 8.8 per cent at $613.7 million and they had plans to strengthen their balance sheet in the future.

“Like for like income growth across the portfolio of 3.5 per cent was underpinned by high occupancy, fixed rental growth and strong leasing outcomes achieved in the Office and Logistics portfolio,” Johnston said.

“The group successfully completed an $867 million capital raising in June to fund the acquisition of a 25 per cent interest in Darling Park 1 & 2 and Cockle Bay Wharf, Sydney, and to support the next phase of growth for the group.

“We are making very good progress on our strategy to grow the logistics portfolio.

“The addition of three new development sites in our core markets of Sydney and Melbourne, combined with projects currently underway, provides the Group with the opportunity to deliver more than 550,000 square metres of new prime logistics facilities with an estimated end value on completion in excess of $1 billion.”

Moody's corporate finance senior analyst Saranga Ranasinghe said the results were what they expected for a diversified asset.

“In particular, weakness in the retail segment was offset by the strong performance in the office and logistics segments, driven by strong market fundamentals in both Melbourne and Sydney,” Ranasinghe said.

“GPT’s balance sheet also remains well-positioned for its rating, with its recent equity raising providing conservative funding for growth initiatives.”