GPT Distribution Forecast: Lower Payout Expected in 2024 Amidst Rising Interest Rates
GPT, one of Australia’s leading property owners, has projected a lower distribution for 2024 as it grapples with the impact of elevated interest rates. The company expects a payout of 24.0 Australian cents per security, down from 25.0 cents in 2023, as it cited the effects of higher interest rates, a reduction in the payout ratio from the GPT Wholesale Office Fund, and an anticipated increase in lease incentives to attract tenants to its offices.
Despite the challenging environment, GPT forecasts a slight improvement in funds from operations for the year. The company aims to achieve funds from operations of approximately 32.0 Australian cents per security in the 12 months through December, up from 31.37 cents in 2023. GPT attributes this expected improvement to an increased level of trading profits in 2024, primarily driven by the sale of sites at Sydney Olympic Park.
GPT, which boasts a diverse property portfolio encompassing malls, offices, and warehouses, has been experiencing the ramifications of higher interest rates. The increased cost of debt has weighed on its funds from operations, which decreased to A$600.9 million in 2023. The adverse impact of rising interest rates was further validated by S&P Global Ratings, who downgraded GPT’s credit rating in late November, underscoring the challenges faced by the company.
In addition to the impact of interest rates, GPT reported an annual net loss of A$240.0 million, compared to a profit of A$469.3 million in the previous year. Negative property valuation movements of A$819.0 million, a significant increase from the A$159.3 million decline in the prior year, contributed to the disappointing financial result.
Despite these setbacks, GPT remains optimistic and highlights the potential offsets to the challenges it faces. “The impacts of higher interest costs and elevated vacancy in our Office portfolio is expected to be offset by an increased level of trading profits in 2024, with the main contribution coming from the sale of sites at Sydney Olympic Park,” the company stated.
As GPT navigates the hurdles posed by rising interest rates, it will be crucial for the company to adapt and strategize effectively to maintain its financial performance and overcome the current market challenges.
Analyst comment
This news can be evaluated as negative. GPT has forecasted a lower distribution in 2024 due to the impact of elevated interest rates in Australia. The company cited higher interest costs, reduced payout ratio, and increased lease incentives as factors affecting its distribution. However, GPT expects a slight improvement in funds from operations this year. As an analyst, I predict that the market will be negatively impacted by GPT’s lower distribution and net loss, but the slight improvement in funds from operations may provide some stability.
