'Death of office exaggerated': Property giant GPT confident on workers' return
One of GPT's malls, Melbourne Central, has been hit by the new lockdown in Victoria.

'Death of office exaggerated': Property giant GPT confident on workers' return

Property giant GPT Group has brushed off suggestions of a permanent decline in the office market despite revealing a $519 million first-half loss and slump in rent collection from mall tenants as the coronavirus pandemic ravages the sector.

Chief executive Bob Johnston said although demand had fallen in the past few months and incentives in rent contracts had risen to be about 25 per cent, there were signs tenants were keen to return to the office. “I think the [death] of the office is very much exaggerated,” Mr Johnston said.

“There will be changes in workplace practices and work from home arrangements but tenants have told us their staff still enjoy face-to-face collaboration which helps to shape the DNA of the organisation’s culture.”

GPT is one of the country’s largest diversified listed trusts and owns and has investments in office towers, shopping centres and logistic warehouses. It is the first property group to reveal the impact of the global pandemic and posted a $519.1 million loss for the first half to June 30, down 247 per cent on the previous corresponding period. The group took a $711.3 million hit in assets values as retail rents dropped and tenants held back from signing office leasing deals.

However, despite a rise in office vacancy rates across CBD locations, GPT’s office rent collections and occupancy remained high at 97 per cent and 94.4 per cent, respectively, because of its diverse government and private tenants.

Funds from operations dropped 23.3 per cent to $244.5 million due to introduction of the commercial tenancies code of conduct, which provides rent relief for the retail tenants. Store closures across its shopping malls resulted in rent collection falling to 36 per cent from all tenants. The group undertook independent valuations for the entire retail portfolio as at June 30, which resulted in a negative revaluation of 10.5 per cent.

“As a consequence of both the challenging environment and the code, rent collection from our retail tenants fell sharply in the second quarter,” Mr Johnston said.

“Although malls have been hard hit, we see brands that dominate their sectors will still want to have a physical presence and the higher-quality fortress shopping centres will continue to attract these leading labels.”

Mr Johnston said the group was negotiating with its tenants on a case-by-case basis and acknowledged the stage four lockdowns in Victoria had created additional uncertainty.

On a brighter note, the group said the rise in online shopping had helped boost its logistics business. GPT will continue to reweight its portfolio towards industrial property through its $1 billion development pipeline.

Moody’s Investors Service vice president Saranga Ranasinghe said despite the decline in retail asset values the group “benefited from the diversification and quality of its asset portfolio, with the improved performance of the logistics segment amid robust demand for logistics assets partially offsetting the weakness in retail”.

Macquarie Equities analysts Stuart McLean said while retail continues to experience significant challenges, cash collection in the period was above expectations. “Coupled with a strong balance sheet, we expect GPT to continue to pay a material distribution per security going forward,” Mr McLean said.

The group has maintained a strong balance sheet and has liquidity of $1.2 billion.

Due to the uncertainty of the pandemic GPT has not provided any earnings guidance for the coming six months. The interim dividend was 9.3??.

GPT securities closed were up marginally at $3.84 in late afternoon trading.

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