GPT Group's (ASX: GPT) announced their 2019 interim results today, delivering 2.0% in FFO growth per security and 4.0% growth in distributions. The group recently launched a share placement plan of $800m to fund additional investments in logistics and a project with stage 1 planning approval in Darling Harbour. The headline net profit however was down 51.6% to $352.6m, as revaluations made a substantially lower contribution than they did in the latter half of 2018.
GPT also updated their CY19 guidance, projecting DPS growth of 4% and 2.5% growth in FFO per security. The bullish outlook was supported by house price stabilisation, along with lower interest rates that will flow through to lower cap rates. Lower interest rates make assets with a set rental yield more attractive, meaning that investors accept a lower yield and pay a higher price for the asset. Additionally, the ongoing investment in infrastructure in both Sydney and Melbourne will support GPT’s core markets by making urban centres more attractive places to live and work. Tax cuts also flow through to rising rent through retail leases, many of which include a set percentage of the tenant’s sales as part of the lease payment.
One positive worth highlighting from today’s result is the $114.8m valuation uplift from GPT’s office portfolio. 70% of the valuation uplift has been driven from rental growth, which feeds through to price growth if cap rates do not rise. They also achieved an 8.2% return in their funds management division, an impressive result against a challenging commercial real estate environment. They also delivered a 9.6% total return across the whole business, a figure which includes rental returns and revaluation gains, which were a net positive for GPT.
GPT operates across retail, office and logistics real estate, concentrating on quality assets in the major urban centres of Australian cities. The group also has a funds management division which operates two wholesale funds, one focussing on offices and the other on shopping centres. GPT has a market cap of $11.9bn and trades on 7.8 times earnings, well below sector peers.
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