Trade Idea: GPT 32s
The GPT 32s represent the best A band rated REIT in the market currently, with a yield above the magic 3% mark. GPT has a high-quality asset portfolio and maintains pole position as the best REIT in terms of quality, occupancy, and rental income. GPT benefits from a high proportion of its leases being on high fixed-increase schedules.
Around 70% of retail leases increase by an average of 4.6% a year, 83% of office leases increase by an average of 3.8% a year, whilst 93% of logistics leases increase by an average of 3.2% a year. Putting aside COVID-19, many of GPT’s retail assets are also showing an improvement on a moving annual turnover (MAT) basis.
We view the recent acquisition of the Ascot Capital portfolio for AUD682m on 18 October 2021 as favourable for the company as it increases its exposure into the logistics sector with 23 new assets of a value of AUD4.1bn (or around ¼ of the company’s portfolio). The logistics sector is experiencing a secular shift given economic and market trends − especially with the growth of Amazon and Google.
Debt metrics are also in the upper quartile of the REIT sector. The latest FFO to net debt print was around the 10% mark, which places it at a comparably good level versus other REITs (see Chart 1 below).
Chart 1. Asset Portfolio Statistics
Source: Bloomberg as at June 2021
The recent Q3 2022 operational update showed that asset valuations in the logistics sector continue to be supported by very strong investment and tenant demand. Office leasing enquiry is anticipated to pick-up in the key markets of Sydney and Melbourne as businesses begin to return to the workplace following the easing of restrictions.
After a challenging period for retail, there is likely to be a pickup in customer visitations and sales across all assets. This should support stronger rental collections. SME tenants eligible for rental relief under the government-mandated schemes in NSW and VIC represented approx. 37% of rental income in those states.
GPT is also working through commercial arrangements to agree on appropriate relief for non-SME tenants on a case-by-case basis for the period of the lockdowns.
Chart 2. Financials
Source: Bloomberg, IAM Credit Research
Relative Value
Amongst the REITs, we like GPT 32s, which trade around 10-20bps wide to the A band rated REIT curve. The GPT 32s are also fairly liquid relative to the other REITs available in the market.
Chart 3. Relative Value
Source: Bloomberg
