We have purchased GPT Group (GPT:ASX) within the Property allocation for investor portfolios. GPT is an active owner and manager of a diversified $14.8B portfolio of Australian retail, office and logistics and business parks property assets. GPT also has a large fund management division with property asset under management of approximately $25B.

We like GPT Group for the following reasons:

  • the high quality diversified portfolio across industrial, office, retail sectors and has one of the lowest gearing ratios in the sector and low cost of debt;
  • strong balance sheet and large headroom on debt covenants positions the business to withstand the very challenging short term operating conditions;
  • office portfolio has very strong key tenants and limited near term lease renewals reducing the potential impact of rent roll during uncertain times;
  • opportunity for GPT to utilise its balance sheet capacity and capitalise on lower commercial property prices; and
  • the longer term outlook for property valuations likely to be supported by low bond yields.

The containment measures are pressuring the retail portfolio as unprecedented short term headwinds from government imposed COVID-19 restrictions weigh heavily on retailers and as a secondary impact declining rental income for landlords. Short term property valuations are likely to come under pressure as COVID-19 related income pressure is met with a liquidity related risk premium spike. We believe GPT Group is well placed to ride through these short term impacts and many be able to capitalise on opportunities created by this industry disruption.

We have funded the purchase of GPT Group from our existing overweight cash allocations thereby reducing our current underweight position to the property asset classes as valuation support has finally emerged in the sector.

If you have any questions regarding the purchase of GPT, the property sector or any parts of your portfolio please do not hesitate to contact the Elston team as we are always happy to help.

Thank you for your ongoing support and we wish you and your family all the best at this difficult time.