Retail Sales Decline a concern at GPT
The GPT Group are downplaying the impact of slowing retail sales on their portfolio expressing confidence that they will weather the storm due to the strength of the office and logistics markets.
In their quarterly operational update released this week, GPT provided a monthly retail sales chart which showed a significant slow down in retail sales since November 2018 with Fashion and Discount Department Stores continuing to experience declining annualised sales.
The impacts are being felt by investors with the wholesale shopping centre fund (GWSCF) receiving a total return of just 3.4% for the 12 months to 31 March 2019, compared to 12% for the previous 12 months. Lower valuation gains and impacts from development works are likely to be key factors to the lower return. The Group's failure to find a buyer for Wolloongong Central at book value should theoretically be reflected in a lower valuation in the next accounts.
GPT believes that retail assets in strong catchments with a compelling proposition will grow productivity, the key for GPT is to adjust their tenancy mix to ensure that they maximise the compelling nature of the retail offering, as opposed to doing more of the same. In December GPT noted that they would down weight their exposure to fashion and increase exposure to dinning and lifestyle.
At Highpoint, GPT have signed a new 20-year lease was signed with Hoyts and at Northland’s the strategy to introduce more international mini-major has progressed, with the opening of Sephora in February, with Uniqlo due mid-2019.
The GPT Group continues to benefit from strong office fundamentals in Sydney and Melbourne with higher rents, strong leasing and valuation gains still being achieved across the portfolio. The wholesale office fund (GWOF) achieved a total return of 11.7% for the 12 months to 31 March 2019 compared to 13% for the previous 12 months.
Other Operational Highlights
The Group undertook a US$400 million (A$559 million) US Private Placement (USPP) debt issuance for an average term of 12.9 years at a margin of 170 basis points over 3 month BBSW. Settlement is expected to occur on 25 July 2019
Office leases of 47,000 square metres (sqm) signed during the quarter, and maintained office portfolio occupancy of 97.1 per cent
Completed the sale of the Group’s 50 per cent interest in MLC Centre for $800 million, representing a 3 per cent premium to 31 December 2018 book value
Successfully opened the $432 million Sunshine Plaza retail expansion (GPT ownership: 50 per cent)
Total Centre comparable MAT growth of 1.3 per cent (2.4 per cent at 31 December 2018)
Total Retail Specialty comparable MAT growth of 1.9 per cent (3.6 per cent at 31 December 2018)
Retail specialty sales of $11,480 per square metre (psqm) ($11,460 psqm at 31 December 2018)
Logistics leases of 33,000 sqm signed during the quarter, and occupancy of 94.4 per cent (97.2 per cent at 31 December 2018)
GPT maintained its guidance at FFO per security growth of 4% and DPS growth of 4%
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