The coronavirus pandemic, which has dramatically started to influence shopping habits and weigh heavily on retail landlords, has forced diversified fund manager GPT Group to writedown its flagship Wholesale Shopping Centre Fund by $511 million.
Led by Bob Johnston, GPT has been in the process of offsetting its exposure to anaemic retail conditions, decreasing its retail portfolio weighting by 16 per cent since 2010, and shifting investment weighting within its portfolio away from retail centres.
The fund manager controls a $25 billion portfolio split between shopping malls, city office towers and logistics assets.
In its latest market update, GPT said asset values in its wholesale shopping centre fund, of which it owns 28.5 per cent, were down 11 per cent.
The fund owns interests in seven malls including Highpoint Shopping Centre, in Melbourne, Wollongong Central and Macarthur Square in Sydney's west, of which rental income relies heavily on high foot traffic in order to support experience-based offerings.
GPT pointed to the economic effects of coronavirus, softening in rental growth, restricted trading conditions and vacancy downtime for the reduction in valuation.
Earlier this year, the fund manager had flagged challenging conditions in the sector which had led to reduced turnover rent while leasing deals also taking longer to wrap-up.
Discretionary sectors including department stores, discount department stores and general fashion categories, leading into the coronavirus crisis, had show minimal or declining growth in sales.
Since that time, the federal government's continued restrictions and measures on movement to try and fight the spread of coronavirus, which has seen tens of thousands of people across the retail sector laid off in recent weeks, have been rolled out across the country.
Johnston said the asset revaluations reflected the independent valuers’ assessment of the effects that the coronavirus and the measures being implemented by federal and state governments were having on economic activity.
While buoyant conditions in office and logistics markets up until recently had offset sagging prospects in the retail sector, GPT's Wholesale Office Fund, of which it holds a 22.9 per cent stake, also suffered a negative revaluation.
The fund recorded loses of approximately $183 million, a decline in book value of approximately 2 per cent, chalked up to lower near term rental growth assumptions.
Last month, GPT dumped its earnings guidance before reaffirming its position and the strength of its balance sheet to ride through the uncertainty, with $1.3 billion of available liquidity held in cash and undrawn bank facilities.
The fund manager is jointly undertaking the $1 billion Cockle Bay Wharf redevelopment with Canada’s Brookfield and AMP, with plans for a 73,000sq m office tower.
It also secured a further 25 per cent interest in Darling Park 1 & 2 office complex for $531 million midway through 2019.