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GPT VIDEO



 

Stock Of The Day - GPT (EXPENSIVE)

In today’s daily we cover GPT Group (GPT), which is a property group with broad access to capital invested in quality assets. It is Australia’s largest diversified listed property group with approximately $18 billion of assets under management. Approximately $10 billion of assets are under diversified portfolio of Australian retail office and logistics property while the remaining are assets under a fund management platform. The company recently announced its March 2015 quarterly results whose highlights were strong retail sales and potential of future growth in office leasing. The company is replenishing its development pipeline with acquisition of land adjacent to the Rouse Hill Town Centre for a purchase price of $61.2 million. According to the management, the acquisition secures the future expansion potential of Rouse Hill Town Centre, an asset that has achieved strong performance. The company has secured 37,200 square metre of new leases and renewals across the portfolio. The leasing occupancy is up by 100 basis points to 94.9% since the start of the year.





Moving Annual Change in Retail Sales by Category (Source: Company reports)

The company has also initiated process to appoint a new CEO. Mr Cameron who has been the CEO and Managing Director of the company for six successful years, announced last year that he will step down from the position in order to become the Group CEO of Suncorp. Although the company most likely has strong internal candidates, the change in leadership can create uncertain times for the company in near future.

Coming back to the performance, GPT registered a speciality sales growth of 6.8% in the March’ 15 quarter indicating strong performance in the retail segment. The performance in the retail segment was primarily attributed to low interest rates and fuel prices, combined with a sound housing market, as well as to improving political stability. However, this rate of growth is still less than the 7.3% growth rate achieved by the company in March 2014. The trend of the company in speciality sales growth is not still very favourable with growth being less than the 6.8% for 9 out of 12 months. 



GPT Portfolio Diversity (Source: Company reports) 

Occupancy in the logistics portfolio remains stable at 95.7%, up slightly from the 95.3% at December 2014. Over the first three months of the year, there has been 12,240 square metre leased in the portfolio. However the logistics portfolio occupancy was 96.2% in 2013 and 98.2% in 2012. Thus, the trend of occupancy in logistics portfolio is not favourable yet. The company’s stated policy is to maintain a strong balance sheet. The weighted average cost of debt this year to date was 4.7%. The gearing ratio of the company was low at 28% as at 31 March 2015.





Investment Management (Source: Company reports) 

A key performance measure for the company is total return measured at both GPT level and at individual asset level. Total Return is calculated as the change in Net Tangible Assets (NTA) per security plus distributions per security declared over the years, divided by NTA per security at the beginning of the year. This measure also drives the incentive payment for the staff, providing simplicity, alignment and transparency. GPT targets to deliver the overall long term returns of greater than 9%. For 2014, GPT achieved a total return of 9.3%. Total return at portfolio level was 9% for retail, 8.6% for office, 12.7% for logistics.

The short-term strategy of the company is going to be to increase its portion of earnings from active property related business areas. These are funds management, logistics and major project development and asset management. GPT is targeting a contribution of 10% of earnings from these product lines. Fund management platform has performed well during the March quarter. GPT Wholesales office fund (GWOF) and the GPT Wholesales shopping centre fund (GWSCF) delivered total fund returns over the year to 31 March 2015 of 12.8% and 6.6% respectively. GWOF has maintained significant outperformance over its peers over one, three, five and seven year time period. GWSCF has achieved a total return for the ninth months to March 2015 that is highest among its peers.


GPT Chart (Source - Thomson Reuters)

The company is also in the news for introducing a new diversity policy designed to have 40% female representation in senior management positions by the end of 2015. Then the expectations about GPT on track to deliver 5% full year earnings growth with momentum in retail sales and new leases has gained some attention lately. First stage of retail redevelopment of MLC centre is anticipated to be through by 2015. A positive spin may also be attained from the Australian federal government budget with regards to the real estate investment trusts but needs to be weighed against tenant profitability and higher levels of supply. As per the recent annual general meeting of May 2015, EPS growth of 4.1% and total return of 9.6% have been reported. GPT completed $2 billion of asset transactions during the year. The Company however admitted that there has been a mix of economic fundamentals with submissive business confidence and consumer sentiment.

The company is currently trading at a Price to Earnings multiple of about 11.5 and a dividend yield of 4.8%. At this time, the stock is trading little close to its 52 week high of $4.890.

Given the change in management and moderate operational trends, we believe that the stock is expensive at the current price of $4.39.