GPT Group (ASX:GPT): Still hasn’t surpassed pre-COVID levels, but is it finally out of the doldrums now?

GPT Group (ASX:GPT) released its annual results (for CY25) yesterday, but the market reaction was nuanced and it remains below pre-COVID levels. Is this company just an undeserved victim of the levels of investor appetite for REITs, or is there something at the fundamental level warranting it to have not reached levels last reached 6 years ago? Let’s take a look.

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Overview of GPT Group

GPT Group traditionally stood for General Property Trust. You see, it was the ASX’s first ever REIT, joining the bourse in 1971. Its portfolio consists of commercial property assets across retail, office, and logistics sectors, while also operating a funds-management platform that co-invests with institutional partners.

In 2019, it had a $25.3bn portfolio, of which $14.9bn was directly owned. 84% of its portfolio was retail and office spaces, 42% and 41% with the remaining 16% being logistics. Fast forward to now and its total portfolio was $39.8bn. Retail and office spaces were 72%, 38% and 34% respectively, whilst logistics was 28%.

Why the shift?

This has been a result of GPT strategically expanding in the logistics space (upping its investments from $2.4bn to $11.1bn) but it has not given up on the office and retail spaces – its $860m investment for a 50% stake in Grosvenor Place in Sydney is a testament to this.

GPT has also acquired partial stakes in major shopping centres and expanded tenants via co-investment structures, including partnerships in Perth with Perron Group and managing other major centres.

GPT’s wholesale funds (Office and Shopping Centre Funds, and QuadReal Logistics Trusts) have grown through institutional capital, bringing indirect exposure to more properties and increasing total AUM. The Office fund alone holds ~$8bn in assets.

COVID gave a hit, but things are seemingly looking up

No discussion on REITs can be complete without the impact of the pandemic. The pandemic hit GPT hard, particularly because its portfolio included a large exposure to shopping centres and CBD offices. Lockdowns, changes in working patterns and lower foot traffic severely disrupted retail trading and office occupancy, leading to significant valuation declines in 2020 and 2021.

GPT reported a full-year loss in 2020, with nearly $870 million wiped off shopping-centre values and a swing from strong profits to a loss due to property revaluations and lower earnings. Bur despite these setbacks, GPT never exited the market — it maintained a strong balance sheet, deferred non-essential spend, and continued to develop and acquire assets.

In its most recent results, its FFO was A$650m (34c per share/security) or $494m on an adjusted basis. Its profit was A$981m, buoyed by valuation uplifts. Its occupancy was 97.6% and its gearing was 31%.

So is it investors’ fault for GPT not reaching pre-COVID levels?

It is complicated. We wouldn’t go so far as to say,’ GPT has totally recovered from pre-COVID levels and the only reason it has not recovered is deliberate insolence on the part of investors’. GPT has recovered operationally, but several structural and market factors explain why it hasn’t sustainably reclaimed those levels.

The biggest driver is the shift in the interest-rate environment. Pre-COVID, Australian 10-year bond yields were around 1–2%. Post-inflation shock (2022–2023), rates moved materially higher and the RBA hiked rates 3 months after its latest cutting cycle.

For A-REITs like GPT: Higher bond yields increase required returns (cap rates expand), Property valuations fall when cap rates rise, Lower asset values reduce NTA per security, and Investors demand higher yield spreads, compressing price multiples.

Even if earnings recover, the valuation framework is different from the ultra-low-rate world when GPT traded above $6. Moreover, share prices in REITs anchor around its NTA per share over time and the starting asset base is lower than it was when GPT traded above $6. Its NTA per share actually continued to rise post-COVID and peaked at $6.26 for 1H22, but fell ever since and was $5.31 3 years later. The company is trading at a discount, but only a 5% discount.

Office exposure hurts

Also, GPT (as we already noted) still has significant CBD office exposure. While leasing conditions have stabilised, the office sector globally has undergone higher vacancy, slower tenant demand, incentive pressure and an investor risk re-rating.

Now before anyone from the company sees this and mentions Grosvenor Place and how it is a ‘high-quality’ asset with ‘high-quality’ tenants, we did. But the reality is that office cap rates have expanded more than logistics or retail. That drags down portfolio valuation and investor sentiment.

GPT has grown logistics and funds management, which are positive long term. However: logistics yields are lower (high-quality, but priced tightly), funds management earnings are fee-based and less asset-heavy, plus Retail recovery is solid but not structurally higher growth.

The portfolio today is arguably more defensive, but not necessarily priced for the same growth multiple the market once assigned.

Could it reach pre-COVID levels?

In our view, if interest rates decline materially (but that is a really big if, and seemingly unlikely for a year or two) and office cap rates stabilise, GPT could re-rate closer to pre-COVID levels — but the ultra-low-rate valuation regime that supported $6+ pricing may not return in the same way.

The mean target price amongst analysts is $5.93, which implies some growth from $5.04, but not a return to $6 and beyond. GPT’s P/E is 14.1x whilst its P/B is just below 1x. Consensus estimates call for $0.36 FFO is 2026 followed by $0.38 in 2027 and $0.39 in 2028. The company has guided to $0.354 FFO in 2026 and expects to distribute $0.245 of that.

Now, GPT’s guidance indicates that it anticipates re-investing some of its profit in its business. Most REITs pay out 90-100% of earnings because they know their primary purpose of existence is to distribute to investors – REITs are ‘Trusts’. GPT will likely reinvest that money in itself and may reap the benefits, but investors wanting short-term payouts would be better off investing in other REITs with a higher payout ratio.

Conclusion

To answer the question in this article’s title, the company from an operational standpoint has recovered. But the investor appetite for REITs has not – this is hardly GPT’s fault. Yet even for investors wanting REITs, they may be better off investing in REITs with a higher exposure to growth sectors and/or that pay out higher proportions of their profit. So even if GPT is ‘out of the doldrums’, it may take a while for shares to go ‘to the moon’.