GPT GROUP — Annual Report 2016

Feb 13, 2017

2016 ANNUAL RESULT

14 February 2017

AGENDA

SECTION SPEAKER	SECTION SPEAKER
2016 Annual Result Highlights	Bob Johnston
Finance & Capital Management	Anastasia Clarke
Retail	Vanessa Orth
Office & Logistics	Matthew Faddy
Funds Management	Nicholas Harris
Summary & Outlook	Bob Johnston

2016 Annual Result Highlights

• FFO growth and Distribution growth in line with guidance

• Total Return of 15.5%

• Debt maturity profile lengthened across a diversified investor base

• GWOF terms renewed

• Acquired GWOF ($209m) and GWSCF ($157m) units

• Continued focus on business efficiency

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GPT 2016 Annual Result

2016 Business Outcomes

INVESTMENT PORTFOLIO & OPERATIONS

• Like for like income growth 4.5%

• Occupancy maintained at >95%

• Asset recycling to improve quality

−Dandenong sale

• −Divestment of Kings Park

• Continued focus on business efficiency

• Investing in technology to deliver customer insights and influence behaviours

$ 4.5% 612M Portfolio like for like Total valuation growth uplift 97.1% 5.1YRS Total portfolio Portfolio occupancy WALE

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GPT 2016 Annual Result

2016 Business Outcomes

DEVELOPMENT

• Performance of completed development projects in line with investment case

• −Casuarina Leisure & Entertainment

• −Charlestown remix

• Current developments tracking in line with program and budget

• Development pipeline enhanced

• −Parramatta office acquisition

• −Sydney logistics sites

• −Sydney Olympic Park (SOP) office pre-commitment

• SOP and Camellia opportunities remain subject to rezoning

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GPT 2016 Annual Result

FINANCE

Financial Summary

12 MONTHS TO 31 DECEMBER ($ MILLION)	2016	2015	CHANGE
Net Profit After Tax	1,152.7	868.1	32.8%
Deduct: Valuation increases	611.6	432.1
Deduct: Distribution on exchangeable securities	-	1.7
Add back: Treasury items marked to market	23.0	74.0
Deduct: Other items	27.1	6.6
Funds From Operations (FFO)	537.0	501.7	7.0%
Maintenance capex and lease incentives	(115.5)	(118.6)
Adjusted Funds From Operations (AFFO)	421.5	383.1	10.0%
Weighted average securities on issue (million)	1,797.4	1,773.9
Funds From Operations per stapled security (cents)	29.88	28.28	5.6%
Distribution per stapled security (cents)	23.4	22.5	4.0%

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GPT 2016 Annual Result

Segment Result

12 MONTHS TO 31 DECEMBER ($ MILLION)	2016	2015	CHANGE
Retail	294.1	295.5
Office	225.0	210.5
Logistics	95.4	94.6
Funds Management	61.0	44.6
Net Income	675.5	645.2	4.7%
Net interest expense	(100.0)	(117.6)
Corporate overheads	(29.8)	(33.1)
Tax expense	(14.0)	(4.9)
Non-core income	5.3	12.1
Funds From Operations	537.0	501.7	7.0%

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GPT 2016 Annual Result

Capital Management

• Reduced weighted average cost of debt by 35bps to 4.25%

• Upgrade of GPT’s long term rating with Standard and Poor’s to A

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	Dec 2016	Dec 2015	Change
Net tangible assets per security	$4.59	$4.17	9.9%
Net gearing1	23.7%	24.8%	(110) bps
Weighted average cost of debt	4.25%	4.60%	(35) bps
Weighted average term to maturity	6.5 years	5.1 years	1.4 years
Interest cover ratio	6.4x	5.3x	1.1x
Credit ratings (S&P / Moody’s)	A / A3	A- / A3	Upgrade
Weighted average term of hedging	4.4 years	5.6 years	(1.2) years
Drawn debt hedging	57%	63%	(600) bps

1. Calculated net of cash and excludes any fair value adjustment to foreign bonds and their associated cross currency derivative asset positions. Prior period restated in line with revised methodology.

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GPT 2016 Annual Result

Capital Management

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• Debt capital market issuance of $600m in 2016 providing greater diversification of funding sources

• Weighted average debt term increased to 6.5 years with a staggered maturity profile

• Strong liquidity position with $786m of cash and available undrawn facilities

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Sources of Drawn Debt Debt Maturity Profile
6.5 year
CPI Bonds average
3% Domestic debt term
USPP Facility Limit A$ million
bank debt
20%
21%
Foreign
MTNs Foreign
6% bank debt
14%
Domestic Secured 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H
MTNs bank debt
32% 4% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
600
513
415
260 263
200 200 200
175 175
146
100
50 69 64
20 30
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GPT 2016 Annual Result

RETAIL

Retail Highlights

Key Portfolio Statistics

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3.8% 2.6% $11,036 99.6% $230.8m 5.39%
Portfolio like for Specialty sales Specialty sales Total portfolio Valuation Weighted
like income MAT growth productivity occupancy uplift average cap
growth per sqm rate
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	RETAIL FINANCIAL HIGHLIGHTS	2016	2015	CHANGE
	Property NOI	$246.7m	$251.7m	(2.0%)
	Income from GWSCF	$38.7m	$36.9m	4.9%

• Total Portfolio Return of 10.6%

• Like for like income growth driven by underlying fixed rental escalations, high portfolio occupancy and improved leasing spreads

• Property Net Income reduced by the divestment of Dandenong Plaza

• Increased investment in GWSCF to 25.3% with $157m of units acquired

• Valuation gains in portfolio due to solid underlying income growth and firming in key metrics

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GPT 2016 Annual Result

Retail Valuations

•	Total valuation gain of $230.8m	Total valuation gain of $230.8m
•	Strong valuation gains driven by outperformance on key assets
•	Annual cap rate compression of 19bps to		5.39%
	VALUATION UPLIFT 2016 (MILLION)
	PROPERTY	VALUATION	UPLIFT	CHANGE
	Melbourne Central	$1,274.0	$129.1	11.4%
	Westfield Penrith (50%)	$636.2	$38.1	6.4%
	Highpoint (16.67%)	$383.2	$35.5	10.3%
	Rouse Hill Town Centre1	$578.8	$11.4	1.9%
	Charlestown Square	$892.6	$1.0	0.1%
	Casuarina Square (50%)	$313.0	$0.4	0.1%
	Sunshine Plaza (50%)	$417.3	($27.3)	(6.6%)
	GWSCF Ownership2	$822.7	$42.6	6.8%
	TOTAL	$5,317.8	$230.8	4.8%
	1. Valuation uplift includes Rouse Hill Land of $3.2m
	2. Based on GPT’s equity interest in GWSCF

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GPT 2016 Annual Result

Retail Sales

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• Proactive investment decisions improving portfolio composition and
asset quality
• Strategic capital investment in development pipeline has
contributed to productivity growth
• Active asset management focused on remixing into growth retail
categories
Specialty Sales ($psm)
11,036
CAGR +5.3%
10,460
9,754
9,458
8,964
2012 2013 2014 2015 2016
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GPT 2016 Annual Result

Retail Sales

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• Introduction of domestic and international mini major retailers has driven category outperformance

• Remixing strategy has contributed to strong productivity growth

• Focusing apparel offer to sector leading retailers has delivered apparel productivity growth of 5.2%

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Total Centre Sales Growth Specialty Category Growth
12.6%
MAT Growth MAT Growth (psm)
4.2%
3.2%
2.4% 2.6%
-2.6% 0.8%
17.7%
10.9% 10.0%
5.1% 5.2%
2.6% 3.6% 3.5%
-1.0% -0.4% -7.1%
Total Centre Dept. Store DDS Supermarket Mini Majors Cinema / Other Retail Specialties Total Specialties Jewellery General Retail Homewares Retail Services Food Catering Food Retail Apparel Leisure Mobile Phones
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Note: Excludes development impacted assets Wollongong Central and Macarthur Square. Portfolio statistics exclude assets divested: Westfield Woden.

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GPT 2016 Annual Result

Retail Leasing

• Retailer demand remains strong for highly productive assets contributing to an improvement in leasing metrics

• Investment in the shopper experience bringing first to market and new retail concepts into the portfolio

• Portfolio continues to deliver strong specialty rental growth

PORTFOLIO LEASING STATISTICS
	Dec 2016	Dec 2015
Specialty Deal Count	504	544
−Avg. Annual Fixed Increase	4.8%	4.8%
−Avg. Lease Term	4.7 years	4.8 years
Leasing Spread	0.3%	(1.6%)
Retention Rate	75%	70%
Portfolio Occupancy	99.6%	99.2%
Specialty Rent - % of Income Expiring	26%	28%
Specialty WALE	2.7 years	2.5 years
Specialty Occupancy Cost	16.9%	17.4%

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Note: Portfolio leasing statistics exclude assets sold: Dandenong Plaza and Westfield Woden.

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GPT 2016 Annual Result

Retail Development

• Sunshine Plaza • $400m retail expansion (100% interest)

• • Development underway, targeting completion in Q4 2018 • All major tenants committed • Specialty leasing program to commence in Q1 2017 • Commencement of new retail mall in Q2 2017 • New carpark (700 spaces) opening Q3 2017

• Architectural perspective

• Rouse Hill Town Centre Macarthur Square Wollongong Central

• • • • Progressing plans for $250m retail $240m retail expansion (100% interest) H&M, Anaconda and Rebel opened expansion • Specialty leasing program 95% 2H 2016

• • • Development application submitted complete $68m repositioning including introduction

• • Discussions with anchor tenants • New Coles, Aldi, H&M and Harris Scarfe of David Jones due for completion in underway stores late 2017 • Refurbished David Jones, Target and Woolworths stores

• Scheduled opening March 2017

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GPT 2016 Annual Result

Retail Market Outlook

	RETAIL		RETAIL		GPT
	SALES		LEASING		PORTFOLIO
						Portfolio
•	Moderation in retail sales	•	Demand for space in highly	•	85% of our portfolio	expected to
	growth		productive assets remains		positioned in the growth	deliver
•	The ‘wealth effect’ of the		strong		markets of NSW and Victoria	like for like
•	housing market influencing retail sales growth Markets such as NSW and Victoria are expected to continue to outperform	• •	Successful retailers will respond and adapt to the changing retail landscape Leasing strategy continues to respond to consumer trends including lifestyle, food,	• •	Highly productive assets delivering specialty sales over $11,000psm 2017 income will benefit from strong portfolio fundamentals, prudent	income growth of approximately 3% over the medium term
			entertainment and leisure		expense management, and
					full year contributions from
					Charlestown and Casuarina
					post development

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GPT 2016 Annual Result

OFFICE

Office Highlights

Key Portfolio Statistics

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$
6.3% 336.5m 97.0% 135,100m [2] 5.55% 5.5yrs
Portfolio like for Valuation Total portfolio Leases Weighted Office
like income uplift occupancy signed average cap WALE
growth rate
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• Total Portfolio Return of 15.3%

	OFFICE
	FINANCIAL	2016	2015	CHANGE
	HIGHLIGHTS
	Property NOI Income from GWOF	$167.8m $59.4m	$153.8m $58.5m	9.1% 1.5%

• Strong leasing results achieved with 170,000sqm of deals signed or terms agreed

• Like for like income growth up 6.3% driven by increased occupancy and rental growth

• Valuation gains reflect continued investment demand and are well supported by income growth

• Investment in GWOF increased to 24.5% with $209m of units acquired

• Two developments in Sydney, with pre-commitment achieved at Sydney Olympic Park and a site acquired in Parramatta

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GPT 2016 Annual Result

Office Valuations

• Total annual valuation gain of $336.5m

• Valuation gains driven by a combination of income growth and firming metrics

• Annual cap rate compression of 39bps to 5.55%

VALUATION UPLIFT 2016	(MILLION)
PROPERTY	VALUATION	UPLIFT	CHANGE
Australia Square (50%)	$402.6	$50.7	14.8%
1 Farrer Place (25%)	$435.1	$42.6	11.3%
MLC Centre (50%)	$531.5	$46.1	10.0%
Citigroup Centre (50%)	$554.5	$45.2	9.2%
Melbourne Central	$513.5	$37.1	7.9%
CBW Melbourne (50%)	$336.3	$16.0	5.0%
111 Eagle Street (33.3%)	$284.2	$9.2	3.4%
GWOF Ownership1	$1,283.1	$89.6	9.1%
TOTAL2	$4,340.7	$336.5	9.1%

WEIGHTED AVERAGE VALUATION UPLIFT

Sydney Melbourne Brisbane +11.8% +6.6% +2.6%

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Composition of Valuation Gains
Income Growth Cap Rate
42% Compression
58%
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1. Based on GPT’s equity interest in GWOF

2. Excludes 4 Murray Rose Avenue, Sydney Olympic Park

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GPT 2016 Annual Result

Office Leasing

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• Portfolio occupancy increased to 97.0%

• 135,150sqm of signed leases and 34,750sqm of deals at Heads of Agreement

• IAG lease renewal at CBW in Melbourne

• Effective rent growth of over 20% in Sydney driven by strong growth in face rents and a reduction in incentives

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Deal Composition – 2016
Sydney CBD
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Displacements
12%
Renewals
39%
New Tenants
31%
Existing Tenant Expansion
18%
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Signed Lease Volume
2012 – 2016
(Sqm)
180,000
160,000
HoA
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2012 2013 2014 2015 2016
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GPT 2016 Annual Result

Sydney Olympic Park Pre-Commitment

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• 4 Murray Rose Avenue, Sydney Olympic Park

• 15,700sqm of A-Grade office accommodation

• 60% pre-commitment (9,300sqm) to Government Property NSW for the NSW Rural Fire Service for 12 year term

• Expected completion date 2H 2018

• Value on completion over $100m

• Targeting yield on cost >7%

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GPT 2016 Annual Result

Parramatta Site Acquisition

• Prime corner site of 2,400sqm in the heart of Parramatta’s core commercial precinct

• Acquired in December 2016 for $31.2m with settlement to occur in March 2017

• 26,000sqm of A-Grade office accommodation

• Subject to pre-commitment, construction is targeted to commence in 2018 with completion in 2020

• Value on completion over $220m

• Targeting yield on cost >7%

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GPT 2016 Annual Result

Office Market Outlook

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• Sydney to continue to deliver strong effective rental growth, with withdrawals exceeding supply additions from 2017 to 2019

• Melbourne recorded high demand in 2016 with prime net absorption of 168,000sqm. With limited new supply over the next three years we expect tightening vacancy levels and strong effective rental growth

• Brisbane vacancy remains high as the market absorbs recent supply

Prime Grade Net Effective Rental Growth Sydney & Melbourne

Total Prime Grade Net Absorption Sydney & Melbourne

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25.0% 250,000
22.5%
20.0% Sydney 200,000 Sydney 171,513
CBD CBD
15.0% 13.0% 150,000 168,151
10.0% 100,000 Melbourne
5.0% 50,000 CBD
0.0% 0
Melbourne
-5.0% CBD -50,000
-10.0% -100,000
-15.0% -150,000
sqm. pa
% growth pa
Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16
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Source: JLL, GPT Research

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GPT 2016 Annual Result

LOGISTICS

Logistics Highlights

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Key Portfolio Statistics
$
1.4% 38.9m 95.3% 78,800m [2] 6.54% 7.9yrs
Portfolio like for Valuation Total portfolio Leases Weighted Logistics
like income uplift occupancy signed average cap WALE
growth rate
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	LOGISTICS FINANCIAL	2016	2015	CHANGE
	HIGHLIGHTS
	Property NOI	$93.1m	$91.4m	1.9%
	Income from GMF	$1.4m	$2.8m	(50.0%)

• Total Portfolio Return of 10.8%

• Strong leasing results achieved with 128,000sqm of deals signed or agreed

• Occupancy increased to 95% and 2017 expiry reduced to 4%

• Net income growth driven by development completions in 2015, offset by vacancy and divestments

• Sale of Kings Park for $50m representing an 8% premium to book value

• Developments underway to deliver $125m of new investment assets in 2017

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GPT 2016 Annual Result

Logistics Leasing

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• 78,800sqm of signed leases and 49,000sqm of deals at Heads of Agreement

• • 2017 expiry reduced from 18% in 2015 to 4%

• • Leasing activity led by retail distribution

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GPT Logistics Expiry - 2017 GPT Leasing Deals
By Industry
Other
20%
10%
18%
Manufacturing Retail
4% 10% 55%
4%
As at 31 Dec 15 Signed Leases & Kings Park Sale As at 31 Dec 16 Wholesale
HoA 15%
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GPT 2016 Annual Result

Logistics Development

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Huntingwood Drive, Sydney Abbott Road, Seven Hills

• Four sites acquired in Sydney at Eastern Creek, Erskine Park and Huntingwood totalling 21.7 hectares

• Construction underway for the delivery of $125m of investment assets in 2017

• Leasing progressing well on Western Sydney developments, with terms agreed at Abbott Road, Seven Hills for 100% of GLA

• Upgrade of existing Huntingwood facility underway

• Pre-commitment secured at Metroplex Wacol, Brisbane and five land sales

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GPT 2016 Annual Result

Logistics Market Outlook

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• Sydney demand recorded the highest take-up in almost 20 years with the market benefiting from government infrastructure spending and tightly held land supply

• Melbourne demand remained strong in 2016, however competitive supply conditions and elevated vacancy is forecast to persist into 2017

• Soft tenant demand in Brisbane has increased incentives and applied pressure on rents, with conditions expected to continue in 2017

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Sydney Industrial Take-up ('000 sqm) Sydney Industrial Supply ('000 sqm)
1,200
Forecast
700 Historical
1,000
600 average
800
500
600 400
300
400
200
200
100
0 0
2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 2017
All Other Pre-lease Vacancy (m2) Vacant Supply Committed Supply
Source: JLL, Knight Frank, GPT Research
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GPT 2016 Annual Result

FUNDS MANAGEMENT

Funds Management

• The Funds Management business delivered a strong Total Return of 17.9% for the year

• Strong demand for units from existing and new investors across both Funds

• GPT Wholesale Office Fund (GWOF)

• −Performance fee received for full 12 months

• −Successful conclusion of the renewal of Fund terms and liquidity review

• GPT Wholesale Shopping Centre Fund (GWSCF)

• −EGM on Fund terms scheduled for late February 2017

• GPT Metro Office Fund (GMF) process completed in October

GPT Funds Management Return 12 months to 31 December 2016

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3.8% 17.9%
8.4%
5.7%
Distribution Capital Growth FM Business Total Return
Yield Contribution
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		Total	Return	GPT
	Fund	Assets	(1Yr IRR)	Investment
	GWOF	$6.6b	14.5%	$1.3b
	GWSCF	$3.8b	11.5%	$0.8b
	Total	$10.4b		$2.1b

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GPT 2016 Annual Result

GPT Wholesale Office Fund

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• The Fund delivered a strong Total Return of 14.5% for the year

• Fund terms successfully renewed

• −Increase in base management fee to 50bps (up to $6b AUM)

• −Sharing of pipeline rights for both established assets and developments

• −Removal of performance fee structure

• Completed $345m of divestments

• −28 Freshwater Place, Melbourne

• −The Zenith, Chatswood

• −Brisbane Transit Centre, Brisbane

• Two acquisitions finalised totalling $559m

• −33% stake in One One One Eagle Street, Brisbane

• −100 Queen Street, Melbourne

  • Major upgrade to be undertaken following 2.5 year lease back to ANZ

33

GPT 2016 Annual Result

GPT Wholesale Shopping Centre Fund

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• Significant improvement in performance, with the Fund delivering a strong Total Return of 11.5% for the year

• Review of Fund terms well underway, proposing:

• −No change to the base management fee

• −Removal of performance fee structure

• −All other key terms remain unchanged

• Liquidity review to occur in March 2017

• Completed the divestment of Westfield Woden in December

• −11.7% premium to book value

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GPT 2016 Annual Result

Summary & Outlook

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• High occupancy and fixed rental increases underpin portfolio income

• Office expiry profile presents opportunity to capture growth in net effective rents

• Retail development completions in FY16 to provide full year benefit in FY17

• Development pipeline enhanced with recent acquisitions

• AFFO expected to grow faster than FFO in near term

2017 GUIDANCE

FFO per security growth of approximately 2.0% DPS growth of approximately 5.0%

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GPT 2016 Annual Result

Disclaimer

The information provided in this presentation has been prepared by The GPT Group comprising GPT RE Limited (ACN 107 426 504) AFSL (286511), as responsible entity of the General Property Trust, and GPT Management Holdings Limited (ACN 113 510 188).

The information provided in this presentation is for general information only. It is not intended to be investment, legal or other advice and should not be relied upon as such. You should make your own assessment of, or obtain professional advice about, the information described in this paper to determine whether it is appropriate for you.

You should note that returns from all investments may fluctuate and that past performance is not necessarily a guide to future performance. Furthermore, while every effort is made to provide accurate and complete information, The GPT Group does not represent or warrant that the information in this presentation is free from errors or omissions, is complete or is suitable for your intended use. In particular, no representation or warranty is given as to the accuracy, likelihood of achievement or reasonableness of any forecasts, prospects or returns contained in the information - such material is, by its nature, subject to significant uncertainties and contingencies. To the maximum extent permitted by law, The GPT Group, its related companies, officers, employees and agents will not be liable to you in any way for any loss, damage, cost or expense (whether direct or indirect) howsoever arising in connection with the contents of, or any errors or omissions in, this presentation.

Information is stated as at 31 December 2016 unless otherwise indicated.

All values are expressed in Australian currency unless otherwise indicated.

FFO is reported in the Segment Note disclosures which are included in the financial report of The GPT Group for the 12 months ended 31 December 2016.

To provide information that reflects the Directors’ assessment of the net profit attributable to stapled security holders calculated in accordance with Australian Accounting Standards, certain significant items that are relevant to an understanding of GPT’s result have been identified. The reconciliation FFO to Statutory Profit is useful as FFO is the measure of how GPT’s profitability is assessed.

FFO is a financial measure that represents GPT’s underlying and recurring earnings from its operations. This is determined by adjusting statutory net profit after tax under Australian Accounting Standards for certain items which are non-cash, unrealised or capital in nature. FFO has been determined based on guidelines established by the Property Council of Australia and is intended as a measure reflecting the underlying performance of the Group.

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GPT 2016 Annual Result