A relatively strong performance from GPT Group’s shopping mall and logistics portfolios has helped to offset the impact of headwinds on its office holdings, with the ASX-listed property player reporting a narrow $1.1 million statutory interim loss for its 2023 financial year.
Property revaluations totalling $341.3 million were the main driver of the statutory loss – down from a $529.7 million ney profit a year earlier – along with the rising cost of debt. GPT is a landlord in its own right as well as manager of flagship office and shopping mall portfolios.
GPT is trying to sell its half stake in Sydney’s Australia Square. Louie Douvis
Its office portfolio was hit hardest, with headwinds in that sector weighing on income – down 3.4 per cent on a comparable basis – and valuations, which fell $241.8 million or 4 per cent.
GPT’s funds from operations – the property sector’s measure of earnings, which factors out the volatility of portfolio revaluations – dipped to $316.7 million from $326.5 million a year earlier, a result that was around 7 per cent better than consensus expectations.
Long-serving chief executive Bob Johnston – an executive search is under way to find his successor – expects further falls in values in the office sector, although a slowdown in major deals is giving valuers scant evidence for calculate fresh benchmarks.
GPT is itself a seller, looking to offload a $595 million half stake in Sydney’s Australia Square, which if successful would enable the platform to reduce its office exposure as it swings harder into industrial. While GPT was speaking to various parties, the proposed sale was going slowly, a symptom of the sector’s broader slowdown, Mr Johnston said.
“The buyer depth is quite shallow. Anyone who is in the market is being cautious and being probably a little bit opportunistic in their approach,” he told The Australian Financial Review.
Along with the required investment return from office assets rising – pushing office values down – the sector itself was suffering from relative weak demand and an oversupply of space, Mr Johnston said. In that context, the chief executive highlighted GPT’s efforts in leasing close 60,000 square metres of office space over the interim period and targeting 90 per cent office occupancy by the end of the year.
“As businesses rationalise their space, they adopt a more hybrid working [style] in the businesses and that’s putting negative net demand in the market,” he said. “It’s a combination of people working from home and doing hybrid working.
“We’ll see more and more employers saying they want their people back in for the majority of their working week.”
Debt costs are also rising across the GPT platform, from 4.1 per cent in the first half to what it expects will be 5.2 per cent in the second half, giving an all-in cost of debt at 4.7 per cent. To manage that rising load, GPT’s chief financial officer, Anastasia Clarke, increased hedging to near 100 per cent in the second half this year and 72 per cent over the next three years at an average fixed price of 3.5 per cent.
While the challenges in GPT’s office portfolio were in line with expectations, GPT did better than it hoped in its logistics and retail portfolios, Mr Johnston said. Re-leasing spreads in retail – the difference between old and new rental agreements – turned from negative 2.8 per cent across 2022 to 3.4 per cent in its 2023 first half.
And despite some slowing in the second quarter and into July, Mr Johnston said sales “have been holding up better than what they have might have been”.
GPT booked an interim FFO per security of 16.53¢ for its 2023 first half, compared to 17.04¢ a year earlier. Its interim distribution is 12.5¢, down from 12.7¢ a year ago.
The diversified property player expects to deliver a full-year 2023 FFO of around 31.3¢, and a full-year distribution of 25¢, in line with previous guidance. Its stock closed down 2¢, or 0.5 per cent, at $4.18.
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