GPT defies inflation and interest rate headwinds to boost underlying profit

A return of retail activity to pre-pandemic levels and improvements in its office portfolio have helped property investor GPT Group (ASX: GPT) post an 8 per cent increase in funds from operation (FFO) to $326.5 million for the first half of FY22.

The result, supported by continued strength in GPT’s logistics assets, was driven by growth in FFO across all three of the group’s business operations from a year earlier.

While GPT forecasts more subdued conditions ahead as rising interest rates take their toll on retail sales and as the office market continues to tough out the work-from-home trend, the group is forecasting improved earnings for the full year.

Robust conditions in the latest half led to another increase in valuations for the group’s $27.4 billion portfolio which fed through to GPT’s bottom-line net profit of $529.7 million for the six months to June 30. The result was down from $760.5 million a year earlier, but that was bolstered by a bumper $471.7 million increase in valuations, compared with $219.5 million in the latest half year.

GPT’s CEO Bob Johnston says the positive result has defied an ‘uncertain economic environment’ driven by high inflation and rising interest rates.

“Notwithstanding the effects of COVID-19, our retail portfolio continued to perform well with retail sales recovering to levels above 2019 pre-pandemic levels across most of our assets,” says Johnston.

“Strong leasing outcomes have resulted in retaining high portfolio occupancy and leasing spreads continued to improve.”

Even GPT’s prime CBD retail asset Melbourne Central recorded sales across most categories in June at close to pre-pandemic levels following a return of students, tourists and CBD workers to the city.

GPT’s office portfolio also improved in the June quarter, contributing to the 51,900sqm in new leases securing during the half year.

“The sub-1,000sqm tenant market remains most active although more recently there has been increased levels of enquiry from mid-size and larger tenants,” says Johnston.

Momentum in the booming logistics sector led to further falls in vacancies across the GPT portfolio to 0.3 per cent in Sydney and 1.1 per cent in Melbourne.

GPT’s $6.2 billion office portfolio recorded a 92 per cent occupancy rate for the period, while retail occupancy stood at 99.3 per cent, up from 99.1 per cent at the end of December last year.

GPT expects to deliver FFO for the FY22 full year of about 32.4c per security and a distribution of 25c per security. The group is paying 12.7c per security for the latest half-year.