Portfolio Changes - Buy GPT, Suncorp Group (SUN)

Recent changes to Blended Australian Equities Portfolio

Initiating Suncorp Group (SUN)

A continuation of favourable operating conditions for insurers and the defensive nature of premium-rate markets supported our decision to increase exposure to the sector by purchasing Suncorp Group (SUN).

Suncorp provides insurance products and services through the well-known brands of AAMI, GIO, and Apia brands in Australia and New Zealand. In 2024 it announced the sale of its banking business to ANZ, positioning Suncorp as a pure Trans-Tasman insurer. With a heritage dating back more than 100 years, Suncorp Group is an ASX 50-listed company.

Suncorp delivered a strong 1H25 result: cash earnings of $860 million, ~9% above consensus, reflecting continued strength in its General Insurance business. The result was underpinned by an 8.9% growth in Gross Written Premium (GWP), primarily driven by strength in its Motor business. Margins benefited from price increases whilst claims inflation moderated. Management reaffirmed its FY25 GWP guidance of mid- to high- single-digit growth.

The 1H25 dividend was 41cents per share (cps), ahead of the 37ps consensus, equating to a 60.6% payout ratio, the lower end of the 60-80% target range. Suncorp’s capital position remains robust, with a General Insurance CET1 coverage ratio of 1.19x and ~$781m of excess capital. Management also flagged the potential for further capital management initiatives.

Changes to both Australian Equities Income Portfolio & Blended Australian Equities Portfolio

Initiating GPT

We have recently added GPT to the portfolio. GPT remains a well-diversified property platform, with consistent earnings from its Retail and Logistics segments and signs of stabilisation in Office. The business benefits from high occupancy, disciplined capital management, and steady rental growth. While challenges in Office persist, leasing activity and tenant retention metrics have stabilised, and the earnings base remains anchored in cash-generative, well-leased assets.

In CY2024, Retail delivered like-for-like income growth of +4.9%, supported by +4.2% leasing spreads and 99.8% occupancy. Logistics portfolio continues to benefit from tight supply conditions, with 99.5% occupancy, +35% re-leasing spreads, and portfolio rents still ~15% below market - offers further upside as leases reset. In Office, signed occupancy improved from 92.3% to 94.7%, incentives moderated to 35%, and WALE increased to 5.0 years. Leasing volumes were strong, suggesting greater stability than in prior periods.

Approximately 75% of GPT’s FFO continues to be sourced from rental income, with co-investments and funds management contributing 10% and 13%, respectively. While smaller in scale, these areas may become more meaningful over time as logistics development and capital partnerships expand.

GPT maintains a conservative balance sheet, with net gearing of 28.7%, interest cover of 4.0x, and average debt maturity of 5.1 years. The stock trades at a ~15% discount to its NTA of $5.27 (as at December 2024) and offers a forward yield of ~5.5%.

GPT offers reliable income, sound fundamentals, and a margin of safety through its current valuation discount. With improving leasing trends and growth embedded in its logistics pipeline, the business is positioned to deliver stable returns and potential upside if asset pricing conditions become more supportive.