GPT upgrades earnings outlook, primes its funds business
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Property group GPT has substantially raised its earnings forecast for the 2025 year after booking rising income from its malls, warehouses and offices, and an even bigger lift from its expanding funds management operation.
Eighteen months after taking over as chief executive, Russell Proutt said the benefits of building capacity across GPT were paying off, with a 4.4 per cent lift in funds from operations at its interim result to $322.6 million, the standard earnings measure for the sector.
GPT has upgraded its full-year earnings expectations – its financial year aligns with the calendar year – to no less than 3 per cent growth at 33.2¢ per security. Six months ago, its forecast was for between 1 per cent to 3 per cent growth.
“We’re playing for the long-term win here but 18 months in, I’m pretty happy with where we’re at,” Proutt told The Australian Financial Review.
The market is running in GPT’s favour, with income from its commercial property investments across its three main areas – retail, office and logistics – delivering growth of a solid 5.8 per cent on average.
But Proutt has a bigger game in mind as he aims to boost GPT’s funds management business, which takes in two big funds holding malls and office towers, along with individual mandates.
Earnings from its investment management jumped more than 25 per cent to $58.7 million, including trading profits.
The portfolio held by its funds management platform has hit $24.3 billion, almost double the amount that GPT owns directly through its balance sheet. Proutt wants to take that even higher as GPT exploits the investment management operation’s growth potential.
“It’s the foundation of the strategy we have refined over the last 18 months,” he said.
That means moving on from a “dual strategy” in the market of running an investment portfolio on GPT’s balance sheet alongside its funds management operation. It is instead shifting more properties to the investment platform, while retaining stakes of between 20 per cent and 50 per cent.
“What we can do by having this additional investment capacity in the business is we can ship some of that $12 billion [assets on balance sheet] into funds management, release capital, generate a higher return on capital, and grow the business that way,” Proutt said.
“And doing that, we would grow earnings per share and growth of earnings per share. This is a multi-year process.”
The latest example of that strategy is already in motion, with GPT setting up a new $1 billion partnership with Canadian property investment giant QuadReal, which will be seeded with $480 million worth of balance sheet assets.
The management business is growing on other fronts as well, bringing on board five major malls worth about $5 billion in recent months that will be run by its retail team. GPT has also launched a $500 million capital raising for its unlisted shopping mall fund.
The ambition in GPT’s funds operation prompts questions on whether it will push into new sectors as well – beyond retail, office and industrial – but Proutt cautions that any such move would need to include acquiring the relevant management capability.
“We’re not going to say we are experts in some sort of alternative asset class that we don’t have a capability in,” he said.
“We’d be open to adding [such a] platform to the [GPT] franchise, as long as it was something that was scalable and would integrate well with our business.”
