GPT Group Earnings: Retail and Industrial Performing Well, Office Weakness Manageable

GPT’s 2023 annual result revealed funds from operations of AUD 0.31 per security and distributions of AUD 0.25, in line with our estimates and management guidance. 2024 guidance of AUD 0.32 includes an anticipated boost from one-off asset disposal, implying a 2% fall in 2024 FFO, excluding the asset sale. We assume a lower distribution in 2024 of AUD 0.24, also in line with guidance, with free cash flow likely to be weighed down by elevated office incentives. Incentives typically take the form of capital expenditure to entice office tenants to sign a lease. Incentives averaged an elevated 35% of office lease value over the half, and GPT Group expects elevated office incentives for the next couple of years, which seems likely given the new supply continues to arrive, and we estimate it will take several years to soak it up via demand growth.