GPT has delivered an increase in income for the year to June 30, however Net Profits After Tax are down 52% on the prior year. The significant reduction in net profit is largely due to lower valuation gains in office and industrial sectors combined with actual valuation and income declines in the retail sector.
Retail
GPT's exposure has 43% of its capital exposed to the retail sector (down from 59% in 2010) with the impacts from the changing retail environment starting to impact on the financial performance of the trust. In 2019, the group had a 30% churn in specialty tenants and whilst in previous years, GPT has managed to achieve positive leasing spreads, in 2019, the leasing spreads turned negative (down -0.7%).
GPT are hoping an increase in F&B and in Non-Retail uses will absorb the loss of discretionary retailers. Specialty Retail Sales grew just 0.7% over the period. The challenge in retail meant, GPT's Funds from Operations from their Shopping Centres were negative in the year (-0.3%) and with it valuations in the retail assets also declined by -$35.4 million (down 0.6%). Specialty sales per square metre up 1.0 per cent on pcp to $11,512/sqm. Total specialty Moving Annual Turnover (MAT) growth was up 0.7 per cent.
Like-for-like income growth increased 1.4 per cent in the first half. occupancy of 99.5 per cent WACR of the portfolio was 4.86% The Group has progressed the development proposals for both Melbourne Central and Rouse Hill Town Centre, and subject to receiving the required approvals, is targeting to commence both projects in the first half of 2020.
Naturally, GPT points to its strength in the Office and Industrial sectors to make up for the challenge in the retail sector.
GPT’s Chief Executive Officer, Bob Johnston, said “The Group’s diversified portfolio of high quality assets continues to deliver growth for investors. The recent acquisitions are consistent with our strategy of increasing our exposure to the office and logistics sectors while we are also investing in our retail assets to ensure that they are well positioned to grow market share and respond to changing market conditions,” said Mr Johnston.
Logistics
GPT's industrial assets contribution to Funds from Operations was also slightly lower in 2019 than in previous years as the contribution from Development activities reduced, whilst Development costs increased. Like-for-like income growth of 2.2 per cent for the six months to 30 June. Occupancy was 93.4 per cent with a WALE of 7.4 years . A total of 121,300 square metres of leases were signed during the period, with a further 27,000 square metres of terms agreed.
The portfolio recorded a $51.4 million valuation increase (up 2.7 per cent), with the WACR firming 24 basis points to 5.54 per cent. The Group acquired five fully leased investment assets in Sydney, two of which adjoin the Group’s existing holdings in the prime Erskine Park precinct, for $212 million.
In January 2019, the Group completed a new $70 million facility at Eastern Creek, which is fully leased for an 8 year term. A further $200 million of logistics projects are underway.
Office
As expected, GPT's office portfolio acheived strong results in the period, with income and valuation gains contributing to an increase in FFO and Profits for the period. Like-for-like income growth of 6.5% on pcp. Occupancy remained high at 97.1 per cent , with 37,900 square metres of leases signed in the period and terms agreed for an additional 78,900 square metres.
Net revaluation gain of $114.8 million (up 1.9 per cent) for the period. Growth in market rents accounted for approximately 70 per cent of the uplift. WACR of the portfolio at 30 June was 4.94 per cent
The MLC Centre was divested for $800 million, which resulted in a return of 20 per cent per annum being achieved from the asset over the past three years, following an extensive repositioning and leasing program.
The Group secured a 25 per cent share of Darling Park 1 & 2 for $531.3 million during the period. The complex comprises two premium grade office towers and an entertainment precinct, Cockle Bay Wharf. The office towers are 99.7 per cent occupied with a WALE of 5.6 years, and the acquisition takes the Group’s interest in the assets to 75 per cent when combined with the GPT Wholesale Office Fund’s existing stake. Cockle Bay Wharf will be the site for a landmark 73,000 square metre office and entertainment development, Cockle Bay Park, which has recently secured a Stage 1 Development Application approval.
Funds Management
The Funds Management division delivered 7.6 per cent growth in FFO (on pcp), driven by growth in assets under management to $13.3 billion.
The growth in assets under management was driven by acquisitions and valuation growth in the GPT Wholesale Office Fund (GWOF). During the period, GWOF acquired the remaining 50 per cent interest in 2 Southbank Boulevard, Melbourne, for $326.2 million.
The acquisition, combined with valuation growth across the portfolio, has resulted in a portfolio value as at June 30 of $8.5 billion.
The GPT Wholesale Shopping Centre Fund (GWSCF) continued to execute its strategy of improving the overall quality of its portfolio with the launch of a campaign to sell Norton Plaza. Since the end of the period, GWSCF has exchanged unconditional contracts for the sale of this asset at a small premium to book value. As at 30 June, the GWSCF portfolio was valued at $4.8 billion.
2019 Interim Financial Highlights
- Net Profit After Tax of $352.6 million, down 51.6 per cent on the prior corresponding period (pcp), reflecting lower revaluation gains achieved during the period
- Funds From Operations (FFO) of $295.9 million, resulting in FFO per security growth of 2.0 per cent on pcp to 16.36 cents
- Distribution per security of 13.11 cents, up 4.0 per cent on pcp The MLC Centre was divested for $800 million, a 3 per cent premium to book value
- Successfully completed an $800 million Placement and launched a Security Purchase Plan to fund the acquisition of a 25 per cent interest in Darling Park 1 & 2 and Cockle Bay Wharf, Sydney, and Logistics growth opportunities Gearing decreased to 22 per cent and the weighted average cost of debt reduced to 3.8 per cent during the period Issued a US$400 million US Private Placement for an average term of 12.9 years at a margin of 170 basis points.
- The Group reported a net valuation increase of $130.8 million for the six months to 30 June, with the Office portfolio again recording the largest gains.
- Net Tangible Assets of $5.66 per security, up 1.4 per cent on 31 December 2018 Total Portfolio Return (unlevered) for the 12 months to 30 June of 9.6 per cent
- Portfolio occupancy of 95.7 per cent with a Weighted Average Lease Expiry (WALE) of 4.9 years
- Portfolio like-for-like income growth of 3.5 per cent on pc
Outlook
According to GPT, the fundamentals for the office and logistics sectors in Sydney and Melbourne remain positive, with low vacancy levels and manageable supply pipelines, while conditions in Brisbane are showing signs of improvement.
GPT believe that retail headwinds persist, however assets in the right locations are continuing to attract demand from domestic and international tenants and we expect that the retail environment in the second half of the year will benefit from lower interest rates, income tax relief and the stabilisation of house prices.
Consistent with guidance provided for the recent capital raising, GPT confirms guidance for FY19 of:
• FFO per security growth of 2.5 per cent; and
• Distribution per security growth of 4.0 per cent.
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