Macquarie re-rates GPT Outperform: Recovery in retail & office, further upside from logistics

Shares in the office, retail and logistics property group GPT Group (ASX: GPT) are off -21% since pre-covid days, and nearly -5% since February 13, when the REIT released FY21 results that came in below consensus forecasts.

The negative market reaction since has prompted broker Macquarie to upgrade its rating on the stock to Outperform, from Hold.

While increasing to $5.47 from $5.37, the broker admits that the price target looks conservative, especially in light of in headwinds in retail and office and the potential for further upside from the REIT’s logistics unit.

Operational result shows delta, omicron impact

Funds from operations were flat over FY21 compared to FY20, at $554.5m, as new covid variants appeared in the second half and strangled a nascent recovery in capital city CBDs last year.

Costs in FY21 increased by 80%, to $66.4m, due to the higher insurance premiums, the lack of jobkeeper benefits compared to 2020, and several accounting changes.

Management guides to 10-12% improvement in FY22

The REIT also guided to FY22 funds from operations of 31.7-32.4 cents per share, up between 10-12% from the 28.82 cents per share recorded in FY21.

The REIT also guided to FY22 total distributions of 25 cents per share, up from 23.2 cents in FY21.

CEO: Worst ‘now behind us’

CEO Bob Johnston said the FY21 result reflected another year of covid tenant rent relief, but the worst was now behind the REIT.

“We expect our retail portfolio performance will once again recover quickly as community confidence lifts, and we are starting to see evidence of this over the last couple of weeks.”

In the office segment, which accounts for about 38% of GPT’s assets, Johnston said jobs and economic growth in Australia meant continued competition for talented staff.

“While hybrid work practices are being embraced by most companies, the physical workplace will remain important for organisations to attract talent and shape culture.”

GPT: A six month share price snapshot.