Transcription of Finance News Network Interview with GPT Group Limited (ASX:GPT) Chief Investment Officer, Carmel Hourigan
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from GPT Group (ASX:GPT) is its Chief Investment Officer, Carmel Hourigan. Carmel welcome to FNN.
Carmel Hourigan: Thank you
Lelde Smits: GPT Group has just partnered with the GPT Wholesale Office Fund to buy a new property: What have you purchased, for how much and from whom?
Carmel Hourigan: GPT and the Wholesale Office Fund, which is called GWOF has purchased an office asset in Melbourne. It is called CBW, which is the corner of Bourke and William and we’ve paid $608.1 million, and we’ve purchased that from CBUS.
Lelde Smits: As you mentioned CBW is also known as 'Corner of Bourke and William'. What makes this asset attractive to the Company?
Carmel Hourigan: Well GPT is about buying high quality real estate. We are obviously diversified across office, retail and logistics, and for GPT and for GWOF this is a perfect fit for our strategy. Its high quality, it’s in a very strong location in the Melbourne market. It’s 100 per cent occupied in terms of its office space with very high quality tenants.
Lelde Smits: How does the CBW asset align with and complement the remainder of GPT's portfolio?
Carmel Hourigan: Well it’s an interesting question, because obviously at the moment we’re very focussed on the Sydney and Melbourne markets, where we see the office recovery coming. By acquiring this asset, we’ll move to around an 88 per cent exposure to Sydney and Melbourne, so it’s very complimentary for us. We currently are in Melbourne and we’re selling an asset, and we’ll recycle that capital into the CBW opportunity.
Lelde Smits: When do you expect settlement of the transaction and which tenants do you anticipate filling the property?
Carmel Hourigan: It’ll settle in around four to six weeks, just a normal settlement period. It is actually fully occupied at the moment. It’s well located near the legal precinct in Melbourne, so we do have a slight tendency to attract legal tenants and we do have some significant legal tenants, already in the building. So that’s one of the key opportunities for us over the next ten years, to continue to work that exposure to the legal sector as well.
Lelde Smits: What financial contribution does GPT Group expect to receive from the asset?
Carmel Hourigan: There’re a number of areas that we’re going to benefit as a Group. The first is we’re acquiring this on a 6.5 per cent core cap rate that is a very good, in terms of income, a very good exposure for us. In terms of the Fund’s management business, because we’re buying 50 per cent of this asset in our Fund’s management business, it means we’ll get additional income coming from the Fund’s management fees. And also from property management fees, which will enable us to have an enhanced return for our shareholders.
Lelde Smits: How much has the Company invested into acquisitions this year and what is your strategy for securing new assets?
Carmel Hourigan: We’ve had a really busy year. We’ve acquired with this asset, around $1.7 billion in transactions and that’s been across office and retail. Interestingly, the majority of those acquisitions have been in our Fund’s business and that has been a great result for the Fund’s business, and for the shareholders who invest in those Funds. But also for the shareholders in the GPT Group stock, because obviously we’re going to get the earnings accretion coming from that.
Lelde Smits: Where is most of your office portfolio located and what is the rationale behind being focussed there?
Carmel Hourigan: We are majority located in Sydney and Melbourne, so around 88 per cent. The reason why we like those two markets is that we think that is where recovery in office demand is coming, in the Australian market. We do have a small exposure in Brisbane into the highest quality assets in Brisbane, and we’re very happy with that exposure. But we see that a pickup in consumer confidence in business sentiment, will impact very strongly on those Sydney and Melbourne markets. And obviously with the recovery in the non-mining sector that is really an eastern seaboard story.
Lelde Smits: Finally Carmel, how are you aiming to structure GPT Group’s portfolio over the longer term?
Carmel Hourigan: We have currently, over the last few years we have been moving the portfolio around. We have actually divested retail assets over the last two to three years. We’ve been using the capital from those divestments to invest in the logistics sector, and we’ve been able to move to a much higher exposure to logistics. So two to three years ago, we would have been sitting at around 11 per cent exposure to logistics. As of June this year, we’ve moved to 15 per cent which is a fantastic result. And we’ve been putting that capital into logistics development, particularly in the Sydney market which has had great results for us, and we’ve been able to achieve returns in line with our strategy.
Lelde Smits: Carmel Hourigan thank you for the update from GPT Group.
Carmel Hourigan: Pleasure.