GPT Deliver Earnings Growth by Still Under Pressure

The GPT Group announced its results for the 12 months to 31 December 2022 with a -$1.0bn drop in net profit after tax due to negative investment property movements however earnings per security was up from 28.82 cents in pcp to 32.4 cents.

GPTโ€™s Chief Executive Officer, Bob Johnston, said: โ€œ2022 was a year of uncertainty and external challenges as we transitioned from COVID-19 restrictions in the early part of the year, to an environment of high inflation and higher interest rates. Despite these challenges, GPT has remained resilient and it is pleasing to report that the Group delivered solid growth in Funds From Operations and distributions in line with guidance.

โ€œRising bond yields have led to a softening of valuation metrics for real estate assets. This has been partly offset by market rent growth, particularly for the logistics sector. As a result, there was a negative 2.2% revaluation movement from 30 June 2022 for the GPT portfolio primarily driven by lower valuations for the Office assets.

โ€œWe remained focused on our strategic priorities of driving resilient and growing income from our owned and managed high quality diversified property portfolio, growing our funds under management and maintaining a prudent approach to capital management.

โ€œWe are delighted to have been appointed by UniSuper to manage its $2.8 billion direct real estate portfolio and subsequently by UniSuper and Cbus Property to manage the $2.7 billion Australian Core Retail Trust. These mandates include some of Australiaโ€™s premier retail destinations and securing these has been a strong endorsement of GPTโ€™s management capabilities.

โ€œOur Retail portfolio has delivered strong results for the year. While higher interest rates and inflationary pressures are expected to moderate retail sales growth over the course of 2023, GPTโ€™s high quality Retail portfolio is well positioned with high occupancy and strong sales productivity.

โ€œThe office leasing market remains challenging, with tenant demand being impacted by the adoption of hybrid work arrangements and the expectation of softer economic conditions. While the occupancy of our Office portfolio declined in the period due to a number of larger tenant expiries in the second half, we remain confident that our portfolio will benefit from the tenant flight to quality we are seeing in the market.

โ€œOur Logistics portfolio continues to deliver strong results for the Group. We are making excellent progress with our developments, with an additional seven assets completed and four more scheduled to complete over the next 12 months. Ongoing structural tailwinds in the sector continues to drive tenant demand, low vacancy rates and strong market rental growth.โ€

GPT are trading at a -22% discount to NTA as markets continue to price REITs on an expectations of lower forecast earnings amid ongoing inflationary pressures and rising interest rates. GPT has 78% of its drawn debt hedged to reduce the exposure to further rate rises in 2023 however the effect of rising bond yields is also observed in the slowing of investment capital flows and general economic uncertainty, increasing the potential for further softening of investment metrics adopted for valuations. Further tightening of monetary conditions is expected to moderate economic growth over the next 12 months.

The Group expects to deliver 2023 FFO of approximately 31.3 cents per security and a distribution of 25.0 cents per security, slightly lower than 2022 results.

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