Earnings guidance dumped as REITs smashed

Fund manager GPT and pubs operator Redcape Hotel Group abandoned their earnings forecasts as uncertainty ripped listed property stocks, sending the sector 15 per cent lower on Thursday.

The earnings withdrawals follow hard on the heels of Mirvac’s decision to dump its outlook. More major property landlords are expected to pull their forecasts from the market as the economy seizes up amid the spreading virus crisis. The broader market fell 3.4 per cent.

GPT revealed plans for a $650 million office and retail redevelopment of Sydney’s Cockle Bay Wharf just last week. Nick Lenaghan

Traditionally seen as a defensive sector in the equities market, Australian property stocks are now perceived as vulnerable due to their higher exposure to the retail sector, an allocation which is greater than that of their global peers.

“Panic is driving many decisions currently,” said Pete Morrissey, who heads APN Property’s real estate securities business.

“Across the REITs there has been indiscriminate selling. Our sector has a bias toward retail and that is seen as very sensitive to what is going on.”

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Mr Morrissey noted recent announcements by some of the largest retail landlords globally, Unibail in Europe and Simon Property Group in the US, on their moves to shutter large parts of their respective portfolios. But he contrasted that with the current situation in Australia.

“In Australia there is strong support by the government that the malls are integral to getting through this. Some retailers won’t be trading. But some are definitely required and will continue to trade and the supermarkets are going as well as they ever have. It’s a mixed outcome.”

Even landlords such as Charter Hall Retail REIT, down 12.7 per cent, and Shopping Centres Australasia, down 10.1 per cent, with larger exposures to supermarkets were caught up in the sell-off.

“It is an extremely tough environment which we haven’t seen before,” Mr Morrissey said.

Hit harder were the biggest mall owners which have a greater component of discretionary shopping: Vicinity dropped 20 per cent, and Scentre, which runs Westfield centres, fell 16.7 per cent.

GPT boss Bob Johnston says “these are uncertain times”. Janie Barrett

Only last month at its full-year results announcement, GPT managing director Bob Johnston guided to growth in both funds from operations per security and distributions per security of 3.5 per cent.

GPT said it was withdrawing guidance “given the rapid escalation of measures being employed by governments and business to slow the spread of the COVID-19 virus and the current uncertainty in relation to the duration and impact of the pandemic on our operations”.

“We recognise that these are uncertain times for our people and for our customers,” Mr Johnston said.

“Through the implementation of the policies and procedures we have in place to respond to such an event, we are taking the appropriate steps to support our stakeholders during this time.”

GPT said its balance sheet was in a strong position to ride through the uncertainty, with $1.3 billion of available liquidity held in cash and undrawn bank facilities. Its gearing is at 22 per cent, with less than $100 million of debt maturing by the end of 2021.

The fund manager controls a $25 billion portfolio split between shopping malls, city office towers and logistics assets. Mr Johnston has been pursuing a strategy to swing the weighting toward investment in office and logistics, effectively reducing the exposure toward shopping malls.

Just last week it revealed plans for a $650 million office and retail redevelopment of Sydney’s Cockle Bay Wharf.

Pub operator
This week Jefferies analyst Sholto Maconochie warned that more listed property companies can be expected to withdraw 2020 financial year guidance.

Landlords with exposure to consumer discretionary retail were most at risk, he said.

On Thursday as well, listed pub operator Redcape, owner and operator of 32 venues, said it would not be paying a March quarter distribution and would continue to reassess quarterly distributions based on trading conditions.

Previous earnings guidance was 9.2¢ a share or greater for FY20. A full-year distribution of 8.75¢ a share had been forecast.

Redcape, which is backed by Moelis Australia, has seen its market value plummet by more than half in March as investors have deserted stocks exposed to discretionary spending.

The group said it had not experienced a slowdown in patronage and that it was on track with expectations but that the uncertain environment had led it to withdraw its guidance.

“As effects of the COVID-19 outbreak and public policy impact Australia and the broader business community, we are taking immediate and prudent measures to protect our business, employees and stakeholders,” said chief executive Dan Brady.

“As economic conditions evolve, we will continue to manage our business within the confines of the current restrictions to ensure that the business remains strong in the long term.”

Redcape said its balance sheet and debt position remained “robust”.

GPT closed 21 per cent lower, while Redcape sank 28.6 per cent on Thursday.