Industry giant says consumer confidence on the rise in shopping centres

Melbourne Central’s customer visitations in March 2021 were up 36% on the previous two months’ average. Picture: Getty
Melbourne Central’s customer visitations in March 2021 were up 36% on the previous two months’ average. Picture: Getty

Property major the GPT Group says it is recovering in the wake of the coronavirus crisis, with earnings bouncing back from the depths of the pandemic as it pushes into logistics.

The company affirmed that it was on track for funds from operations per security growth of 8% and distribution per security growth of 12% for 2021, if the economic recovery remains on track and COVID-19 does not hit again.

GPT chief executive Bob Johnston said Australia’s economy was benefiting “from the post COVID-19 recovery and the disruption to our operations is abating”.

“While risks remain, including the speed of recovery of our Melbourne Central Shopping Centre and further COVID-19 related disruptions, trading conditions over the first quarter have provided us with sufficient confidence to announce earnings and distribution guidance for the 2021 full year,” he said.

The group’s portfolio mainly held up during the pandemic, although its malls suffered when COVID-19 hit.

Mr Johnston said consumer confidence “continues to be strong, driving foot traffic at our shopping centres, office utilisation is steadily increasing and demand for logistics assets remains strong reflecting the increased economic activity”.

The market response was subdued with GPT units bumping up 1c to $4.71.

Macquarie analyst Stuart McLean cited the still difficult conditions as a constraint.

“The softer outcomes in logistics, lack of lease up in office, combined with limited growth in sales in January/February months are indicators of why fiscal 2021 funds from operations per security guidance was below consensus expectations,” he said.

GPT’s rent collection jumped during the March quarter, with 105% of net billings collected, as tenants paid up debts from last year particularly in shopping centres, which had been expected by analysts.

The company remains a believer in office towers and finished a major tower at 32 Smith Street in Parramatta in January, which is now 72% committed by tenants.

Leasing enquiry and inspections picked up during the quarter and included renewals with Vocus at 530 Collins Street and Morrows at 2 Southbank Boulevard in Melbourne, and AIG Australia at 2 Park Street in Sydney.

The GPT Wholesale Office Fund-owned Queen & Collins in Melbourne is now 26% committed, including terms agreed with tenants including buy now, pay later giant Afterpay.

GPT is expanding in the hot logistics sector and completed a series of developments early in the year, with four more starting in the next half.

On the retail front, specialty sales were up 12.4% and total centre sales were up 8% on last year with big growth in general retail, leisure, fashion and footwear and technology, with even department stores coming back.

Cinema sales are still being hit by reduced patronage given the lack of new product, while travel agencies are also yet to recover given the ongoing international travel restrictions, and city stores are still suffering.

“While foot traffic at Melbourne Central remains well below 2019 levels, customer visitations in March 2021 were up 36% on the previous two month’s average. The group remains confident the centre will recapture it’s former vibrancy as the CBD recovers,” Mr Johnston said.

“While 2020 was a challenging year for physical retailing, the recovery we have seen in visitations and sales growth demonstrates the quality and resilience of our assets and the desire for customers to return to our shopping centres.

“Record levels of household savings and buoyant consumer confidence, coupled with an increasing appetite for a return to normal activities, should continue to translate to broadbased retail sales growth across the entire portfolio over the remainder of the year,” he added.

Macquarie said that while cash collection was showing improvement, the numbers were inflated by how the company had accounted for payments. The analyst is also wary about a retail recovery.

“We remain cautious on the rebound in sales across malls to levels being achieved across the broader retail system, particularly for portfolios with a stronger weighting to Melbourne,” the analyst said.

If Melbourne Central is included in retail figures then total centre sales growth sags to 0.4% and specialty shops would be up 2%.

During the quarter, GPT unveiled an $800 million capital partnership with QuadReal Property Group, to go deeper into logistics and expand its funds unit. It has bought developments in Melbourne and Brisbane and is chasing more sites.

GPT launched an on-market buyback for up to 5% of shares in February and has bought $111.8 million worth of stock.

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