Conditions in place for retail rush, says GPT

Higher house prices, lower interest rates and an improvement in business confidence after the October federal election are tipped to lead to better Christmas trading for retailers and office landlords, according to GPT Group.

At the third-quarter update on Monday, chief executive Michael Cameron said while data was yet to emerge, sentiment among his group's tenants was more positive than in the past few years.

GPT is among the top-three largest retail and office property owners in the country and the improved sentiment led Mr Cameron to upgrade the 2014 earnings-per-share guidance to 6 per cent, from the previous 5 per cent. GPT has a December 31 balance date.

"Factors influencing the upgrade include the continuation of the share buyback in the third quarter, the cost of debt forecast being reduced and more clarity on the net operating income of the portfolios," Mr Cameron said.

Brokers said the upgrade was positive after GPT reported a fall in net profit for the first half due to a lower valuation of some assets.

Many said while the update had no surprises, it indicated the group was taking a more "forensic" approach to capital allocation, with total return (at the asset level) as key performance hurdles.

As part of the strategy update, Mr Cameron said the group would now focus on a total return target number as the primary measure for the business, which he forecast would be 9 per cent. To help get there, directors' short-term incentives would be based 100 per cent on achieving the total return target.

To help achieve the higher levels, GPT would look to boost, over time, the funds under management by an additional $10 billion, from the current $7.2 billion, which would come from new trusts in 2014 - a wholesale metropolitan office fund and an industrial fund.

Mr Cameron said the strategy was to increase "active" or non-rental earnings income from 3 per cent to 10 per cent of earnings as the funds under management grew.

This would come from increasing the size of existing funds and the creation of new funds, he said. But there was no definite timetable to achieve the $10 billion, he said.

Simon Wheatley, head of property research at Goldman Sachs, said the execution of the growth in funds under management was "clearly going to be relevant as to when investors might be willing to pay for the strategy target - with an undefined time frame on this, we will be waiting to see execution before factoring it into our earnings or valuation".