GPT Profit Falls as Retail Income Slips and Value Gains Slow

GPT Group, Australia’s second-biggest diversified real estate trust, said first-half profit fell 6.7 percent as income from retail properties dropped and it saw smaller gains in property values.

Net income slid to A$257 million ($236 million) in the six months ended June 30, from A$275.5 million a year earlier, the Sydney-based company said in a statement to the Australian stock exchange. Net operating income in its retail property division slipped to A$139.6 million from A$160.4 million a year ago, as the company sold off assets.

The company, which in May withdrew its bid for rival Australand Property Group’s commercial real estate division, is seeking to reduce its exposure to retail properties, and has about A$2 billion to spend on office and industrial assets, Managing Director Michael Cameron said in June. While GPT expects earnings in fiscal 2014 to be 1 percentage point above the change in the consumer price index, this depends on conditions in the office and retail markets, it said today.

“We know general conditions have softened in the last six months, but are they hinting that conditions are perhaps more challenging than many currently believe?” Louise Mylott, Sydney-based executive director for specialist sales at Morgan Stanley, wrote in an e-mailed note. “They will really need to maintain that sharp cost and efficiency focus, reduce debt costs and continue to recycle and effectively allocate capital to achieve their near-term goals.”

Softer Fundamentals

GPT shares rose 0.5 percent to A$3.74 at the close of trading in Sydney, compared with a 1.1 percent gain in the benchmark S&P/ASX 200 index.

Net tangible assets climbed to A$3.76 a share in the first half, compared with A$3.73 a year ago, the company said. Property values rose by A$31.6 million during the six months, compared with a A$122.2 million increase in the same period a year earlier, it said.

Operating income rose to A$236.5 million from A$227.2 million a year ago. Comparable operating income climbed 1.5 percent in the retail division, 3.2 percent in the industrial business and fell 0.7 percent for offices, GPT said.

“While GPT remains cautiously optimistic about the second half of 2013, it is clear that market fundamentals have softened in the past six months,” Cameron said in today’s statement. “GPT has been effective in meeting these market challenges by focusing on actively managing its portfolio. This, together with fixed rental increases, provides a strong base for income growth.”

The company will pay a dividend of 10.1 Australian cents for the half, it said. Its payout ratio will remain 80 percent of return on operating income, which will equate to 100 percent of cash earnings, it said.

GPT is on track to deliver earnings per share growth of at least 5 percent for the year ending Dec. 31, it said.

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