Buying GPT Group (GPT)
We added GPT Group to the portfolio, an additional property trust exposure to the existing position in Viva Energy REIT. GPT is one of the largest and most diversified Real Estate Investment Trusts in Australia and is the oldest listed on the ASX, having floated in 1971. Its $24.8b portfolio is comprised of 43% Retail, 41% Office and 16% Industrial-Logistics properties. It also manages two wholesale property trusts in which it holds equity stakes. While its property portfolio typically produces income growth of 2-3%, its growth profile has been supplemented by acquisitions, developments and funds management. Its resilience comes from diversity, a conservative balance sheet and its outstanding performance in managing the sustainability of the portfolio, for which it is a global leader. While the property sector has broadly been strong, GPT still trades at a modest premium to the value of its net tangible assets with its gearing at 22%, compared to its target range of 25-35%. For this reason it has the potential to buy back stock, while still being able to fund its $1.8b development portfolio. Its underlying 2% income growth rate in the near term will be supplemented by acquisitions in Industrial and the lower cost of debt following the buy back of interest rate hedges. There is the benefit of leasing up of developments and recovery from downtime in the Office portfolio to come in the medium term, while its distribution is maintainable for a current yield of 4.3%. GPT’s Retail portfolio is high quality but still faces a difficult period due to the performance of the retail sector. Notwithstanding this, GPT’s diversification, developments and optionality of its capital structure give the group considerable resilience and a growth profile greater than portfolio income growth.