By David Winning
SYDNEY–GPT forecast a lower distribution in 2024 as it continues to feel the pain of elevated interest rates in Australia.
GPT projected a distribution of 24.0 Australian cents (US$0.16) per security, down from a payout of 25.0 cents in 2023. It cited the impact of higher interest rates, a reduction in the payout ratio from the GPT Wholesale Office Fund and an expected increase in lease incentives to attract tenants to its offices.
Still, it forecast a slight improvement in funds from operations this year. GPT said it expects to achieve funds from operations of approximately 32.0 Australian cents per security in the 12 months through December, up from 31.37 cents in 2023.
“The impacts of higher interest costs and elevated vacancy in our Office portfolio is expected to be offset by an increased level of trading profits in 2024 with the main contribution coming from the sale of sites at Sydney Olympic Park,” said GPT, which owns a property portfolio that spans malls, offices and warehouses.
Like other diversified property owners, GPT has felt the impact of higher interest rates which raised the cost of its debt and dragged down its funds from operations to A$600.9 million in 2023. That was illustrated in late November when S&P Global Ratings said rising interest rates had contributed to its downgrade of GPT’s credit rating.
GPT reported an annual net loss of A$240.0 million, compared to a A$469.3 million profit a year ago. The result was dragged down by negative property valuation movements of A$819.0 million, compared with a A$159.3 million decline in the previous year.
Monday’s result is the last to be delivered by Chief Executive Bob Johnston before his retirement and replacement by Russell Proutt, who starts with the company on March 1. Proutt is joining GPT from Charter Hall where he was chief financial officer.
Proutt faces some challenges upon taking the reins. Occupancy rates within GPT’s office portfolio continue to lag many of the company’s listed peers, despite improving to 92.3% at the end of December, from 88.5% six months before. While leasing has improved, the company has needed to offer more incentives to attract tenants.
The office sector “is facing a period of disruption and we expect that occupancy levels will remain below long term averages due to new supply and muted demand as a result of hybrid working practices and economic uncertainty,” Johnston says.
Retail has been a bright spot for the company, with positive specialty leasing spreads and occupancy of 99.8%. Total mall sales were up 7.4% and total specialty sales were up 6.1% compared to 2022. Still, national sales data point to an increasingly struggling consumer as cost-of-living pressures bite, including the impact of higher mortgage repayment rates.
Positively for retail and GPT’s own debt position, economists appear increasingly confident that the Reserve Bank of Australia has done enough to bring inflation under control and will consider cutting interest rates in the second half of this year. RBA Governor Michele Bullock said on Feb. 7 that “the signs are good” about inflation but officials needed to remain vigilant.
GPT says it is committed to taking a prudent approach to managing its capital, despite the recent downgrade by S&P Global Ratings. Its gearing–a measure of the company’s debt relative to its equity–was 28.3% at the end of December, compared to 28.1% six months before. GPT has a long-standing target for gearing to be within a 25-35% range.
Write to David Winning at [email protected]
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