GPT Group has warned of tough conditions ahead for office and retail tenants but has maintained its earnings growth guidance of at least 5 per cent for the year to December 31.
The country's second-biggest diversified real estate investment trust reported a net profit of $257 million for the six months to June 30, down 6.7 per cent on the previous corresponding period, mainly due to a lower valuation of some assets.
To combat predicted weaker office rents and negative retail leasing spreads, GPT and its co-owner are spending $15 million on stage one of the repositioning of the MLC Centre in Sydney. GPT has also introduced new tenants to its Melbourne Central mall and spent $300 million on extending the Highpoint mall in Melbourne.
Leasing spreads were a negative 5.8 per cent for GPT over the first half. The company said while the fall in interest rates was helping, consumers remained cautious and reluctant to buy with any gusto.
The fall in the value of the $A would also help by making overseas goods on the internet more expensive.
During the first half, GPT completed $690 million of transactions, exiting Erina Fair and the Homemaker bulky goods portfolio. It also bought 3 Figtree Drive, at Sydney Olympic Park, and the GPT Wholesale Office Fund (GWOF) acquired half of 8 Exhibition Street in Melbourne.
Despite the fall in statutory profit, realised operating income of $236.5 million was up 4.1 per cent on last year. GPT chief executive Michael Cameron, said the interim distribution was 10.1¢ per security up from 9.5¢ last year. For the 2014 year, he maintained the earnings per security (EPS) growth of CPI +1 per cent guidance.
Mr Cameron said despite walking away from buying parts of Australand in March, the group had a $2.5 billion cash pot for new acquisitions and "looked at all opportunities", including corporate takeover. He did not directly refer to the rival Commonwealth Property Office Fund.
He said while the office and retail business was tough, the logistics and business parks and fund management sectors delivered a total return of about 9 per cent.