The GPT Group announced that it has independently revalued its retail portfolio as at 31 May 2020 and revealed a $500m drop in value across its 7 retail assets.
Casurina Square, Charlestone and Highpoint were worst with declines in value of up to -16.6%. Overall the decline in value across the portfolio was $476.7 million, or approximately -8.8% compared to the 31 December 2019 book value. A 25bs softer cap rate on most of the assets in the portfolio contributed to 30% of the reduction in value with lower rents, higher vacancy allowances and capital expenditure allowances contributed most of the downturn.
Commenting on the revaluations, GPT’s Chief Executive Officer Bob Johnston said: “The retail asset revaluations reflect the independent valuers’ assessment of the effects that COVID-19 and the subsequent social restrictions have had on our retail assets. This has generally been reflected in lower market rental growth rates, increased vacancy and abatement allowances and some softening in investment metrics. In recent weeks it has been pleasing to see a significant increase in activity at our retail assets as restrictions have been eased. Across our regional shopping centres we now have approximately 90 per cent of stores open and foot traffic has returned to approximately 85 per cent of the level at the same time last year.”
The fall in value comes after Vicinity announced a $2bn (or -13%) drop in valuations in its portfolio last week. No details were provided by Vicinity on the break down of the valuations.
GPT advised that in addition to the retail assets in the direct portfolio, all assets owned by GWOF and GWSCF have been independently revalued as at 31 May 2020. GWOF recorded a negative revaluation of -$34 million, representing a decline in book value of -0.4 per cent against the 31 March 2020 book value. GWSCF recorded a negative revaluation of -$137.6 million, representing a decline in book value of -3.5 per cent against the 31 March 2020 book value. GPT’s ownership interest in GWOF is 22.3 per cent, while its ownership interest in GWSCF is 28.5 per cent.
GPT has also advised that it will not issue guidance on its distributions prior to the release of the Group’s financial results in February and August each year due to the uncertainty created by the effects of the COVID-19 pandemic and the application of the mandatory Code of Conduct.
In addition, the Group is amending its distribution payout policy to align with free cashflow. Under the amended payout policy, GPT will target to distribute 95 to 105 per cent of Free Cashflow, defined as operating cashflow less maintenance and leasing capex and inventory movements. The Group’s previous policy was to distribute 95 to 105 per cent of Adjusted Funds from Operations, defined as Funds From Operations less maintenance and leasing capex. The inclusion of "inventory movements" in the free cash flow appears set to reduce distributions further, however no guidance has been given on what this may mean. Inventory Movements are generally a non cash item, so this adjustment may create some confusion amongst investors.
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