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GPT Retail Drags down Valuation Gain
December 18, 2018
The GPT announced today that 62 properties owned and managed by the Group have been independently revalued at 31 December 2018. The revaluations have resulted in an increase of approximately $447.5 million or 4.7 per cent on 30 June 2018 valuations.
A closer look at the results and the movements from the June 30 results, show that GPT's retail exposures have dragged down the overall results as valuers adopt lower rentals or high incentives.
GPTs revalued only 7 out of 13 retail assets with valuation gains from the 7 assets equal to a 1.5% gain following a 10bps sharper cap rate to a weighted average of 4.87%. These results imply that either the market net income from these assets has reduced by 0.6% over the period or that incentives and capital requirements were higher, pulling down the valuation gain by circa $40m.
With 46% of GPT's portfolio exposed to the retail sector, the retail results contributed only 22% of the increase in value demonstrating that the challenges in the sector are likely to remain with GPT for some time.
GPT’s office assets recorded solid increases during the half with a 3.9% gain across 27 assets, with 2 Park Street increasing by 8.6 per cent, and MLC Centre and Australia Square increasing by 5.2 per cent and 4.8 per cent respectively.
The weighted average cap rate for the Office Portfolio firmed by 7bps to 4.95%. The results indicate that the gain in valuation was predominantly from an increase in market net income (circa 2.4%) as opposed to cap rate compression.
The entire Logistics portfolio was revalued during the period, with the portfolio delivering a Total Portfolio Return of approximately 15.7 per cent in 2018 with the cap rate firming 40 basis points. The valuation results showed a 7.3% gain which was predominantly a result of the firming in cap rates.
In releasing the news, GPT’s Chief Executive Officer Bob Johnston said: “We have continued to see strong growth achieved by the office and logistics portfolio during the period, with the office portfolio continuing to benefit from its high exposure to the strongly performing Sydney and Melbourne markets.”
Whilst the CEO is correct, the performance of the retail market and GPTs high exposure to this sector will continue to be a challenge for the business for some time.