GPT Group - Macquarie · flat at 4.8% (FY15: 4.8%). GPT reported headline net gearing of 23.7% as...

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AUSTRALIA

GPT AU Neutral

Price (at 05:11, 14 Feb 2017 GMT) A$4.82

Valuation A$ 5.09-5.27 - NAV

12-month target A$ 5.09

12-month TSR % +10.8

Volatility Index Low

GICS sector Real Estate

Market cap A$m 8,666

30-day avg turnover A$m 22.9

Number shares on issue m 1,798

Investment fundamentals Year end 31 Dec 2016A 2017E 2018E 2019E

Revenue m 620.7 642.3 662.3 683.3 EBIT m 596.1 624.7 648.8 672.5 Reported profit m 1,152.7 546.8 575.0 591.2 Adjusted profit m 487.4 497.2 525.4 541.6 Gross cashflow m 537.0 546.8 575.0 591.2 CFPS ¢ 29.9 30.5 32.0 32.9

CFPS growth % 5.4 1.9 5.2 2.8 PGCFPS x 16.1 15.8 15.0 14.6 EPS adj ¢ 27.1 27.7 29.3 30.2 EPS adj growth % 2.6 2.1 5.7 3.1 PER adj x 17.8 17.4 16.5 16.0 Total DPS ¢ 23.4 24.6 25.9 26.7 Total DPS growth % 4.0 5.1 5.5 2.8 Total div yield % 4.9 5.1 5.4 5.5 FFO yield % 16.1 15.8 15.0 14.6 AFFO yield % 19.9 19.5 18.4 17.6 Franking % 0 0 0 0 ROA % 10.6 5.3 5.4 5.5 ROE % 6.2 6.0 6.2 6.3

EV/EBITDA x 23.7 22.8 22.0 21.3

Net debt/equity % 35.5 37.9 37.5 37.0 P/BV x 1.0 1.0 1.0 1.0

GPT AU vs ASX 200 Prop, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, February 2017

(all figures in AUD unless noted)

15 February 2017 Macquarie Securities (Australia) Limited

GPT Group Lower for longer to low for longer Event GPT reported FY16 statutory NPAT of $1,152.7m. FFO of 29.9cps was

directly in line with our 29.9cps forecast (drivers discussed overleaf).

Impact FY17 guidance also in line with expectations...growth rate to slow back

to low single digit as expected. Consistent with our prior forecast for FY17

FFO growth of 1.7%, GPT guided to 2.0% growth in FY17. With GPT again

targeting ‘development profits’ of ~1-2% of FFO, we note earnings would be

flat excluding this activity. Further out (FY20+), we note it gets harder with the

base hedge rate increasing to 4.08% vs 3.12% currently (~5.7% all-in using

current margins) placing a drag on earnings (MRE FY20: +0.0%).

Interestingly, GPT guided to DPS growth of 5.0% in FY17 (MRE prior: +4.4%).

Whilst GPT highlighted its DPS is AFFO covered, the DPS is short of AFFO

treating the MLC façade restoration as maintenance activity ($18m spend

remaining). Despite this, incentives are expected to fall due to the strong

Sydney office market, aiding FCF coverage of DPS.

Lots of capacity but limited opportunities…answer at the moment is

development. Factoring strong revaluations partially offset by recent

GWSCF/GWOF redeployment, GPT had 23.7% gearing at December (24.4%

at June). With the group recently extending its on market share buyback, we

believe the group will buy back stock below NTA ($4.59ps). Whilst a 5%

buyback would be ~2.5% accretive to earnings, we assign a low probability to

this being completed given current volatility in global return hurdles and

general uncertainty on the future outlook for asset values. With competition

said to remain very high for direct assets, the group appears to be focussed

on development as a way to secure product and supplement growth.

Mind the detail in retail…holdovers masking headline statistics. Headline

retail statistics were generally solid with comparable NPI growth at 3.8%

(1H16: 3.0%; FY15: 3.0%) and occupancy at 99.6% (99.4% at June). Whilst

the specialty WALE increased to 2.7 years (Dec 15: 2.5 years), specialty

expiries in FY17 are now 26% (June: 18%). Whilst GPT indicated holdovers

are running at ~6% (static), we note several performance statistics exclude

holdovers and given recent administrations, we are remain cautious on

returns in the retail sector. Indeed, flat specialty productivity at Highpoint was

said to be partially attributable to the Pacific Werribee mall redevelopment

(refurbished Myer, new H&M and Uniqlo) albeit we note this is 26km away

(likely secondary catchment) and the second international mini-major apparel

addition at Charlestown has pulled out (cosmetics replacement). Our work

indicates lower international retailer profitability and elevated supply additions.

Earnings and target price revision FFO: FY17E: +0.1%; FY18E: +1.1%; FY19E: -0.8% largely reflecting revised

interest cost assumptions. NAV +2% to $5.09-$5.27ps.

Price catalyst

12-month price target: A$5.09 based on a NAV methodology.

Catalyst: GWSCF liquidity review, fund terms to be voted on next week.

Action and recommendation Whilst GPT remains our preferred defensive exposure of the predominately

retail REITs (over SCG and VCX), with a weaker near-term growth profile and

single digit TSR we retain our Neutral recommendation.

http://www.macquarie.com/research/disclosures

Macquarie Wealth Management GPT Group

15 February 2017 2

Fig 1 FY16 result directly in line with forecast…weaker growth into FY17 also consistent with expectations

The good The not-so-good The interesting

FY16 result in line with expectations. GPT

reported FY16 statutory NPAT of $1,152.7m. FFO of 29.9cps was directly in line with our 29.9cps forecast. The result represents growth of ~5.6% y-y. Drivers in FY16 comprised underlying fixed escalators, lease-up at MLC, a lower debt cost, recognition of the final GWOF performance fee partly offset by dilution from the sale of the Dandenong shopping centre.

NTA increased 4.8% or 21cps to $4.59ps as at December 2016 mainly due to favourable property revaluations with a minor tailwind from the negative MTM of interest rate derivatives in 2H16.

Maintenance capex and incentives expected to decline. In FY16 maintenance capex and

incentives declined -2.6% to $115.5m. This is expected to continue to decline by -4-15% (to $100-$110m) in FY17, driven by lower incentives in the office sub-sector off the back of an improving Sydney office market. We note that this excludes the MLC façade spend.

Specialty MAT sales productivity rose ~5.5% to $11,036 per sqm, driving specialty occupancy cost 50bps lower to 16.9%. GPT anticipates that on-going remixing of the portfolio will lead to increased sales and rents.

Occupancy across the retail portfolio rose to 99.6%, up 20bps from 99.4% at June 2016 (99.2% at December 2015). The increase in occupancy was driven by Highpoint (+120bps) and Melbourne Central (+40bps) and Wollongong Central (+100bps).

Retail leasing spreads continue to improve, and

are now marginally positive (+0.3%), an improvement on the 0% growth in 1H16 and -1.6% in FY15. The group negotiated 504 deals in FY16, with the average annual fixed increase remaining flat at 4.8% (FY15: 4.8%).

GPT reported headline net gearing of 23.7% as at 31 December 2016. Assuming balance sheet deployment of this capital and taking net gearing to the upper limit of the group’s target of 35% allows for ~$2bn of debt-funded acquisition capacity. Assuming a 5.5% initial yield, 96% occupancy and a 3.3% marginal cost of debt, this would result in a ~8% positive impact to group-level earnings.

Office NOI of $225.0m is up 6.9%. The benefit of

strong LFL growth and the lease up of MLC aided by part period impact of increased stake in GWOF. Comparable income rose 6.3% in FY16 (1H16: 6.0%; FY15: 6.3%; 1H15: 8.1%).

Office valuations partially driven by income growth. The group reported total uplift in office valuations of $336.5m or 9.1% which took the total portfolio to ~$4,340.7m (including GPT’s stake in GWOF). The positive revaluation movement was 42% attributed by income growth which is a positive outcome. The WACR compressed 39bps to 5.55% over the year.

Not acquiring the remaining 50% stake in MLC.

GPT mentioned that its capital partner at MLC (QIC) had provided the group with a proposal to acquire the remaining 50% that it did not already own as part of its pre-emptive rights. GPT notified QIC yesterday that it would not proceed with the proposal. We view this as a positive decision by GPT given the lease up of the building to date (99.5% including HoA) is likely to result in limited value creation.

Liquidity exists for funds on the secondary market. The group indicated >$850m of secondary units in GWOF and GWSCF (combined) transacted to both new and existing unitholders. Over $500m of units transacted in GWOF.

Industrial metrics improve post asset sales and GMF divestment. Like-for-like income growth

improved to +1.4% (1H16: +0.1%; FY15 +0.7%) with occupancy increasing to 95.3% (1H16: 92.7%; FY15: 92.3%; June 2015: 92.8%). Headline NOI was ahead of comp NOI growth due to the full-period impact of development completions in 2015.

More components of development pipeline become active. GPT continues to work on its development pipeline which now stands at $3.8bn (up from $3.5bn at 30 June 2016). GPT’s share is ~$2bn. Two industrial land sites were acquired during the period with developments now underway.

EPS growth rate into FY17 to slow as expected… Consistent

with our current forecast for FY17 FFO growth of 1.7%, GPT has guided to 2.0% growth in FY17. The components of our FY17 forecast include the absence of the final GWOF performance fee, Ayers Rock coupon and other transitory items such as the Rouse Hill and Murray Rose sale profits.

…also gets harder further out due to hedge expiries. Further

out (FY20+), we note it gets harder with the base hedge rate increasing to 4.08% vs 3.12% currently (~5.7% all-in using current margins) placing a drag on earnings (MRE FY20: +0.0%). We note the relatively low level of hedging in outer years (4.4 years vs 5.6 years at Dec-15) will eventually place a drag on earnings.

Retail NOI of $294.1m was down -0.5% on FY15 (1H16: 0.7%, FY15: 1.2%) primarily due to sale of Dandenong partly offset by increased stake in GWSCF and development income. GPT divested Dandenong Plaza, which was a headwind to FY16 retail earnings (~6% headwind). This was partially offset by an increased stake in GWSCF from 20.2% to 25.3%. The group also received $5.8m in development income (vs $0.8m in FY15) driven by the sale of Rouse Hill development land ($8.1m).

FY17 retail lease expiries rise, likely due to short term leases.

The next 12 months may prove to be a challenging period for GPT across its retail portfolio with 21% of all leases expiring (includes holdovers) and 26% of specialty leases expiring or expired (includes holdovers). This has increased from June 2016, where total centre FY17 expiries were 14% and specialty expiries were 18%.

Comparable specialty sales growth of 2.6% was lower than the 3.7% recorded at September 2016 (4.2% at June 2016; 6.5% at December 2015). Jewellery (+14.5%) and General Retail (+13.9%) were the best performing categories in FY16, with general retail brands driven by cosmetics sales at retailers such as MAC and Mecca. Sales in apparel declined by -1.2% (vs -0.2% at September 2016) as mini-majors sales grew by 12.6%, likely to be due to international mini-majors and JB-HiFi

Renewing IAG at CBW was a good outcome but marginally behind expectations. The group extended its existing tenancy

(~15,000 sqm) to 2030. IAG also has an additional ~13,000 sqm that it can take up at its discretion. The deal was said to have been completed at face rents as per expectations as at acquisition date (September 2014) although the attached incentive was higher than originally expected given greater competing supply - implying net effective rent below expectations. IAG currently occupies 28,520 sqm or ~37% of the office NLA.

GWOF acquired 100 Queen St during the period…will create more leasing to do. Consistent with media reports over the last few months, GWOF acquired 100% of the current ANZ head office in Melbourne for $274.5m. With the tenant currently occupying 100% of the NLA (34,900sqm), GPT's leasing strategy is to reposition the asset for smaller tenants seeking high quality office space. ANZ will remain there until 2019 before moving to a new building being constructed by LLC in the Docklands.

Office occupancy tailwind largely realised. Occupancy in the portfolio declined ~30bps in the last six months to 97.0% (Sep-16: 98.1%; Jun-16: 97.3%; Mar-16: 97.0%; Dec-15: 96.0%) with lease up in 1 Farrer Place and MLC offset by expiries at Melbourne Central Tower and CBW. The actual rent paying occupancy is 93.6% which is below the reported occupancy of 97.0%. The group indicated that actual rent paying occupancy is expected to stay at the 94% level in 2017 given upcoming expiries in 4Q17.

Office leasing <1% FFO impact...We have assessed the

sensitivity of the group to an improving Sydney office market below. We estimate that there is ~0.3% or ~$1.9m of upside for GPT’s earnings (FFO) from positive leasing outcomes in the office portfolio. We have assumed 10% face re-leasing spreads across the expiries in the NSW assets over the next 2 years (FY17-18) and diluted the GWOF impact for GPT’s stake (25.3%). We assume the benefit is received in FY17 in its entirety.

…greater impact to AFFO. While the above analysis is clearly on

a face-basis, an improving Sydney CBD office market will experience both face rent increases as well as declining incentives which will see a benefit to AFFO initially. The underlying EPS impact (post amortisation of incentives) will take longer to flow through given typical five-year lease durations and cycling of relatively higher incentives in the last few years.

GWSCF fund terms review… unitholder vote to occur on 20 February 2017. There will be no change to the base fee (45bps of GAV) and the performance fee structure will be removed. The stable base fee is as expected as no performance fee has been payable due to the performance of the fund (this compares to GWOF which saw a 5bps increase in the base fee to 50bps as a partial offset to the removal of the performance fee). GPT will not vote on the new terms with its 25.3% equity stake. The minimum threshold is 75% unitholder votes to approve the new terms. There have been no proxies received yet.

Bumping the DPS ahead of the EPS.

Interestingly, GPT guided to DPS growth of 5.0% in FY17 (MRE prior: +4.4%). Whilst GPT highlighted its DPS is AFFO covered, the DPS is short of AFFO treating the MLC façade restoration as maintenance activity ($18m spend remaining). Despite this, incentives are expected to fall due to the strong Sydney office market aiding FCF coverage of DPS.

Lack of retail stock is likely to lead to an increased focus on developments. As well as

limited availability of high quality retail stock, we note GWSCF has first rights on asset acquisitions (and this will not change following the upcoming vote on the funds terms). It is therefore likely that GPT will pursue development opportunities in order to expand its balance sheet retail exposure.

M&A is hard to materialise. GPT noted that is

continues to review M&A opportunities, however highlighted that it is challenging to achieve the desired outcomes. Consistent with prior research we expect corporate activity to remain elevated reflecting: i) renewed focus on alternate growth levers such as synergy cost out; ii) limited underlying growth; and iii) contracting premiums to NTA across the sector (see: Listed property sector - Walking the tightrope).

Buyback will only occur at a discount to NTA ... currently trading at a 6% premium. GPT indicated that it will buy back stock if the share price is trading at a discount to NTA, and the group will be no greater than 1/3 of the daily average volume in the stock. Whilst GPT has rolled its buyback, we assign a low probability to the group buying back the full 10% of stock that is entitled to and we do not forecast a buyback in our model. We also note that in order to keep a buyback activated, a group is required notify the ASX approximately every two months.

Targeting 3% like for like income growth in retail over the medium term. With specialty tenants currently achieving annual rent increases of ~4.8% on ~56% of the total book this equates to ~2.7% of rental growth in isolation. With income growth across other categories, it is possible to get to a 3.5% rental growth figure. Under an assumption of rising property expenses and outgoings of 2.5%, this leverage results in total NOI growth of ~4.0% (or above the group’s target of 3%).

Using GPT’s definition of AFFO results in AFFOps of 23.5, which is slightly above the DPS of 23.4cps. If we were to re-classify the MLC façade expenditure of FY16 (~$9m) as maintenance capex (considered by GPT as development capex), this would lower AFFO to 22.9cps and would therefore be ~2% below the DPS.

‘Happy’ with current stakes in wholesale funds.

During the period, GPT increased its stakes in GWOF to 24.5% (prior: 20.4%) and GWSCF to 25.3% (prior: 20.2%). While the group did not provide any colour around whether it would increase its holdings in either fund, it did mention that the current stakes are satisfactory although it not rule out participating further in the upcoming GWSCF liquidity review (31 March 2017). The group also indicated that no retail assets are currently considered non-core.

Incremental capital deployed in Parramatta. The

group acquired a ~2,400 sqm prime site in Parramatta for $31.2m which will see a 26,000 sqm A-grade office tower developed on it for $212m (GPT: 100%). The end value is expected to be >$220m with a yield on cost of >7%. Construction is expected to commence in 2018 with completion in 2020.

Looking for smaller office tenants. Consistent

with recent research (see: Listed property sector - Walking the tightrope) there has been an increase in demand from smaller tenants for office space. This is being welcomed by GPT, which is actively pursuing tenants <10,000 sqm as a form of leasing risk management. When Freehills left MLC occupancy declined to 62%, and now the largest tenant at MLC is just 7% of NLA.

Source: Macquarie Research, February 2017


15 February 2017 3

FY17 FFO facing headwinds as a start point

Continued headwinds to FY17 earnings growth for GPT comprising: i) absence of the GWOF

performance fee; ii) profits from asset sales (Rouse Hill residential site and final release of profits

at 3 Murray Rose); and iii) the final coupon from the Ayers Rock Hotel sale (deferred

consideration). Whilst these headwinds will be partially offset by a higher base management fee

and further trading profits from asset sales (assumed ~$10m pre-tax), we forecast ~2% growth for

GPT in FY17. The company has guided to this figure with today’s result.

Fig 2 FY17 earnings (FFO) bridge

Source: Macquarie Research, Company data, February 2017

Strong balance sheet provides a potential tailwind if deployed

GPT reported headline net gearing of 23.7% as at 31 December 2016. Assuming balance sheet

deployment of this capital and taking net gearing to the upper limit of the group’s target of 35%

allows for ~$2bn of debt-funded acquisition capacity.

Fig 3 ~$2bn of deployment capacity with current balance sheet

Item Units 31-Dec-16 Deployment Pro-forma

Cash $m 56

56

Intangibles $m 35

35 Other assets $m 11,726 2,035 13,761 Total assets $m 11,818

13,853

Gross debt $m 2,997 2,035 5,032 Net debt $m 2,940

4,975

Adjustment $m (148)

(148) Gearing % 24% 35%

Notes: 1. Excludes unrealised fair value adjustments on foreign borrowings. Source: Company data, Macquarie Research, February 2017

Assuming a 5.5% initial yield, 96% occupancy and a 3.3% marginal cost of debt, this would

result in a ~7% positive impact to group-level earnings. There is also a benefit from the

wholesale funds in terms of higher distributions from the funds and higher FM and PM fees if

the funds both deploy further capital as well (GWOF 17.8% gearing, GWSCF 9.4% gearing).

Fig 4 Deployment of balance sheet capacity is ~7% accretive to GPT headstock

Capital deployed $m 2,035 Cap rate % 5.50% Occupancy % 96%

Passing NPI $m 107.4 Cost of debt % 3.30%

Net interest $m (67.2) FY17 FFO $m 546.8

Earnings accretion/(dilution) $m 40.3 Earnings accretion/(dilution) % 7.4%

Source: Company data, Macquarie Research, February 2017

537

547

18.41.3

7.0

13.9

5.43.2

5.0

10.5

500

510

520

530

540

550

560

570

FY16 FFO Underlyinggrowth

HigherGWOF base

fees

Assumedtrading profits

GWOF finalperf. fee

Rouse Hillresi profit

3 MurrayRose sale

Final AyersRock coupon

Other /dev't

FY17e FFO

FFO bridge - FY16 to FY17e ($m)


15 February 2017 4

Despite this, GPT indicated pricing for established direct assets was very competitive and a more

likely strategy is to increase development activity.

Buyback will only occur at a discount to NTA … currently trading at a ~6% premium to 31

December 2016 NTA. We understand GPT will buy back stock if the share price is trading at a

discount to NTA (not internal NAV). Whilst GPT has recently rolled its buyback, we assign a low

probability to the group buying back the full 10% of stock that it is entitled to and we do not model

a buyback in our model. The group indicated it will be no greater than 1/3 of the daily average

volume in the stock. We also note that in order to keep a buyback activated, a group is required

notify the ASX approximately every two months (should it not buyback any stock).

We estimate a 5% buyback for GPT to be ~3% accretive to FY17 earnings. This is intuitive

given a marginal cost of debt of ~3% and a cost of equity being retired of ~6% (based on the

buyback price). There is clearly sufficient balance sheet capacity as per the analysis above.

Fig 5 Buying back 10% of the existing share base would result in 6% earnings accretion

Shares bought back % 5% 10%

GPT buyback price $ps 4.59 4.59 EFPO m 1,798 1,798 Market cap $m 8,253 8,253

Proceeds required $m 413 825 Marginal cost of debt % 3.2% 3.2% FY17 FFO pre-buyback $m 547 547 FY17 FFO post-buyback $m 534 520 EFPO (post-buyback) m 1,708 1,618 FY17 FFOps post-buyback cps 31.2 32.2 FY17 FFOps pre-buyback cps 30.5 30.5

Accretion/(Dilution) % 2.5% 5.6%


FFO, AFFO and FCF … the impact of capex and incentives

With GPT guiding for 5% DPS growth vs 2% FFO growth we have analysed the various measures

of dividend sustainability. AFFO ($421.5m) grew by 10.0% in FY16, which was greater than the

7.0% achieved at the FFO level. The divergence of growth between these two metrics was driven

by a reduction in maintenance capex and lease incentives by -2.6% (from $118.6m in FY15 to

$115.5m in FY16). Using GPT’s definition of AFFO results in AFFOps of 23.5, which is marginally

above the DPS of 23.4cps. If we were to re-classify the MLC façade expenditure of FY16 of ~$9m

as maintenance capex (considered by GPT as development capex), this would lower AFFO to

22.9cps (~2% below the DPS).

Fig 6 DPS is covered on a FCF basis, even adjusting for MLC façade spend…

Fig 7 … but is not covered on an AFFO basis after adjusting for MLC façade spend

$m

FFO 537

Maintenance capex / incentives -115.5

AFFO 421.5

AFFO cps 23.5

MLC façade restoration -9

MRE AFFO 412.5

MRE AFFO cps 22.9

DPS cps 23.4

FFO 537

Non-cash items 2.7

Other -13.5

Net operating cashflows 526.2

Maintenance capex -45.4

Less incentives -41.5

Other 13.8

FCF 453.1

FCF cps 25.2

MLC façade restoration -9

MRE FCF 444.1

MRE FCF cps 24.7

DPS cps 23.4

Source: GPT, Macquarie Research, February 2017


0.2%

-2%

8%

6%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

AFFO MRE AFFO FCF MRE FCF

DPS coverage (%)


15 February 2017 5

In a further assessment of DPS coverage, if we were to start with net operating cash flow

($526.2m) and adjust for maintenance capex (-$45.4m), lease incentives (-$41.5m) and other

items (+$13.8m), this results in FCF of $453.1m, or 25.2cps, which is ~8% above the DPS. Again,

adjusting for the MLC façade spend of $9m, this would suppress FCF to 24.7cps, which is still

~6% greater than the DPS. Whilst we forecast a shortfall next year, the DPS is FCF covered in

outer years. We note a material discrepancy between AFFO and FCF in GPT disclosure.

Fig 8 DPS well covered by FCF in the half even on an adjusted basis post MLC façade restoration

1H16 2H16 FY16 FY17 FY18 FY19

Cashflow from operating activities EBITDA (incl. associates) 328 300 627 675 699 723 Net interest paid (32) (53) (85) (132) (128) (135) Tax paid - - - (6) (6) (6) Other (30) 28 (2) -

Net Operating Cashflow 265 275 540 537 565 582 Recognition of guaranteed payment for Ayers Rock - - - - - - Maintenance capex and tenant incentives (52) (44) (96) (103) (105) (99)

Free Cashflow 213 231 444 434 460 483 Distribution to ordinary equity 207 223 430 442 466 479

Cash excess / (shortfall) 7 8 15 (7) (6) 4

EPS pre distribution to preference shares 15.0 14.9 29.9 30.5 32.0 32.9 EPS post distribution to preference shares 15.0 14.9 29.9 30.5 32.0 32.9 Free Cashflow per share (cps) 11.9 12.9 24.7 24.2 25.6 26.9 Distribution per share 11.5 11.9 23.4 25.3 25.9 26.7 EPS yield (post distribution to preference shares) 3.0% 3.0% 6.0% 6.1% 6.4% 6.6% FCF yield 2.4% 2.6% 4.9% 4.8% 5.1% 5.4%

Free cash coverage 103.2% 108.2% 105.7% 95.6% 98.7% 100.9%

Notes: 1. In operating cash flow we have added back payments for inventory and interest capitalised on developments. 2. We have also excluded rent free incentives as a deduction (in FY16) as operating cash flow is already lower reflecting the absence of rent. 3. MLC facade spend was ~$9m in FY16, we assumed an equal share in the above table. Source: GPT, Macquarie Research, February 2017

Several leasing hurdles to emerge in Melbourne. While the Melbourne office market is clearly

improving as indicated in the charts below, GPT has several upcoming expiries/vacancies to deal

with.

Fig 9 High net absorption in Sydney and Melbourne.. Fig 10 ... has led to net effective rental growth

Source: JLL Research, Macquarie Research, February 2017

Corner of Bourke and William (CBW). GPT and GWOF acquired equal 50% interests in this

building in September 2014 from CBUS at a 6.5% cap rate ($608.1m transaction for 100%).

The passing yield at the time was said to be ~6% due to a view that the building was under

rented. Deloitte represents 24% of the building’s area and is leaving to pre-commit MGR’s 447

Collins St project. While the expiry is not until May 2020, the loss of the first major expiry in

the building was not a good outcome. Including the impact on the co-investment in GWOF as

well as GPT’s direct investment we anticipate the loss of Deloitte to detract ~1% from GPT’s

earnings on a full-year basis.

82

189

42

(13)

(150)

(100)

(50)

0

50

100

150

200

250

Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16

Sydney Melbourne Brisbane Perth

'000 sqm, Net absorption

22%

13%

(3%)

(18%)

(50%)

(40%)

(30%)

(20%)

(10%)

-%

10%

20%

30%

40%

50%

Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16

Sydney Melbourne Brisbane Perth

Net effective rent growth (% chg p.a.)


15 February 2017 6

…although IAG was a solid outcome with the group extending its existing tenancy

announced with today’s result (~15,000 sqm) to 2030. IAG also has an additional ~13,000

sqm that it can take up at its discretion. We highlight IAG currently occupies 28,520 sqm or

~37% of the total office NLA which means IAG is only committing to ~50% of its current

space. The deal was said to have been completed at face rents as per expectations as at

acquisition date (September 2014) although the attached incentive was higher than originally

expected given greater competing supply – implying net effective rent below asset acquisition

feasibility expectations. The building’s book value increased by 4.8% or $15.3m (GPT 50%

share) during the six months to 31 December with the IAG deal said to be the main driver of

this movement (~4% or ~$13m) which conflicts with the leasing outcome.

AMP at 750 Collins St. GWOF has a 100% interest in 750 Collins St Melbourne. The building

is 100% leased to AMP, with the lease expiring in November 2019. Again, while a longer-

dated risk (i.e. FY20), allowing for GPT’s stake in GWOF the impact of AMP leaving would

again be ~1% of earnings from this lease in isolation.

GWOF acquired 100 Queen St during the period…will create more leasing to do.

Consistent with media reports over the last few months, GWOF acquired 100% of the current

ANZ head office in Melbourne for $274.5m. With the tenant currently occupying 100% of the

NLA (34,900sqm), GPT’s leasing strategy is to reposition the asset for smaller tenants

seeking high quality office space. ANZ will remain there until 2019 before moving to a new

building being constructed by LLC in the Docklands.

While office conditions are currently improving in Melbourne, we note GPT will have to lease

~120,000 sqm of space in the Melbourne market in 2020/2021. This represents ~2.5% of the

market and will occur at a time of increasing supply additions as indicated in the chart below.

Fig 11 Melbourne office stock is expected to grow by ~2.5% between CY17-CY18

Source: JLL, Macquarie Research, February 2017

GPT remains exposed to an improving Sydney office leasing environment

In our recent research (see: Listed property sector - Walking the tightrope, page 96), we

highlighted the strength of the Sydney CBD office market compared to the other major CBD office

markets and an expectation for this to continue given limited new supply in Sydney until 2021.

We have assessed the sensitivity of the group to an improving Sydney office market below. We

estimate that there is ~0.3% or ~$1.9m of upside for GPT’s earnings (FFO) from positive leasing

outcomes in the office portfolio. We have assumed 10% face re-leasing spreads across the

expiries in the NSW assets over the next two years (FY17-18) and included the GWOF impact for

GPT’s stake (25.3%). We assume the benefit is received in FY17 in its entirety.

0.6%1.9%

(4.0%)

(3.0%)

(2.0%)

(1.0%)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Dec-87 Dec-92 Dec-97 Dec-02 Dec-07 Dec-12 Dec-17

Melbourne 20-Yr Average

Stock additions / total stock - Melbourne (%)

Average = 2.2%

JLLF'cast


15 February 2017 7

Fig 12 10% re-leasing spreads in NSW over the next 2 years has a ~0.3% impact to FFO

Units GPT GWOF Total

NPI $m 100.0 135.3 235.3 Lease expiries (FY17-18) % 17% 6%

NPI exposed $m 16.5 8.1 24.6 Spread % 10% 10%

NPI benefit $m 1.7 0.8 2.5 Exposure % 100.0% 25.3%

NPI benefit (ownership-adjusted) $m 1.7 0.2 1.9 FY17 FFO $m 546.8

Accretion/(Dilution) %

0.3%


We have shown the sensitivity of group-level earnings to a change in the re-leasing spread in the

table below given uncertainty around the re-leasing spreads that will be achieved.

Fig 13 Sensitivity of group earnings to re-leasing spreads in NSW

Face net re-leasing spreads (5.00%) 0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

(0.2%) -% 0.2% 0.3% 0.5% 0.7% 0.8%


While this is clearly on a face-basis, an improving Sydney CBD office market will experience both

face rent increases as well as declining incentives which will see a benefit to AFFO initially. The

underlying EPS impact (post amortisation of incentives) will take longer to flow through given

typical five-year lease durations and cycling of relatively higher incentives in the last few years.

We have disaggregated the drivers of effective rental growth in Sydney CBD over the last ~24

months which indicate the bulk of the growth is due to face rent increase and a partial contribution

from declining incentives (refer chart below).

Fig 14 Contributions to net effective rental growth in Sydney CBD

Source: JLL Research, Macquarie Research, February 2017

Recap on potential implications from residential site sales

In February 2016, GPT identified several assets that may be eligible for urban renewal opportunities

including higher and better use (residential development). These assets include: i) Rosehill Business

Park, Camellia; ii) Town Centre, Sydney Olympic Park; and iii) Rouse Hill Town Centre. We had

reviewed the assets and the financial impact in greater detail in our original research here: GPT

Group - Block party, April 2016.

(2.6%) (3.1%) (2.0%)2.2% 3.4% 4.0% 5.2% 6.0%3.9% 5.5%

10.1%10.8%

12.3% 13.0%14.5%

17.9%

0.6%1.6%

7.7%12.7%

15.8%17.3%

18.4%

22.5%

(10.0%)

(5.0%)

-%

5.0%

10.0%

15.0%

20.0%

25.0%

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Incentives Rental growth Outgoings

Contributions to net effective rent growth (%)


15 February 2017 8

Fig 15 Property metrics for assets identified for change in use opportunities

Metric Units

Rosehill Business Park,

Camellia

Town Centre, Sydney Olympic

Park Rouse Hill Town

Centre

Valuation (100%) $m 79.4 87.9 578.8 Asset class

Industrial Industrial Retail

GPT share % 100 100 100 Cap rate % 6.5 7.05 5.75 Site area sqm 79,700 52,900 n.p. GLA sqm 41,900 26,500 69,300 Identified apartments # 3,000 1,991 1,000 WALE Years 1.8 2.5 n/a

Notes: 1. Metrics as at 31 December 2016 2. The number of identified apartments was as per GPT commentary at its February 2016 final results conference call with the ratio for SOP extrapolated based off the GLA/apartment ratio at Camellia. Source: GPT, Macquarie Research, February 2017

The update as at 31 December 2016 includes: i) a draft rezoning to be exhibited in mid-2017 for

Rosehill (Camilla) and finalised in 1H18; and ii) a masterplan gazettal expected in 2H17 with

authorities (Sydney Olympic Park Authority (SOPA)) still finalising wider infrastructure and transport

plans.

On balance, we remain of the view that the group will realise value through a sale of the land/assets

to a developer (consistent with our original research here: GPT Group - Block party, April 2016). The

rationale behind these structures is a desire to be prudent on risk. With recent hires in the business

from competing residential development firms, GPT is building internal capacity in this regard.

Fig 16 Summary of apartment outcomes...~27-32cps depending on preferred structure

Strategy Units Rosehill Business

Park, Camellia

Town Centre, Sydney Olympic

Park Rouse Hill Town

Centre Total

Self-develop cps 17.9 10.9 2.8 31.6

Sale to developer cps 15.6 9.2 2.6 27.3

Notes: 1. Represents present value of apartment profits. Source: Company data, Macquarie Research, February 2017

FY16 result in line with expectations

GPT reported FY16 statutory NPAT of $1,152.7m. FFO of 29.9cps was directly in line with our

29.9cps forecast. The result represents growth of ~5.6% y-y. Drivers in FY16 comprised

underlying fixed escalators, lease-up at MLC, a lower debt cost, recognition of the final GWOF

performance fee partly offset by dilution from the sale of the Dandenong shopping centre.

Whilst the change in segment reporting is again complicating comparison to divisional forecasts,

net income across the divisions of $675.5m (includes co-investment income and pre-

corporate/interest) was in line with our expectations, with net interest lower than expectations and

income tax slightly higher (GWOF fees etc. were taxable in FM).


15 February 2017 9

Fig 17 FY16 FFOps increased by 5.6% on the pcp … driven by lease up of MLC, asset recycling profits booked in the retail and industrial divisions and GWOF performance fee

Jun-15 Dec-15 Dec-15 Jun-16 Dec-16 Dec-16 Item 1H15 2H15 FY15 1H16 2H16 FY16 Change

Retail $m 149.7 145.8 295.5 148.6 145.5 294.1 (0.5%) Office $m 107.3 103.2 210.5 107.1 117.9 225.0 6.9% Logistics $m 51.4 43.2 94.6 49.7 45.7 95.4 0.8% Funds Management $m 15.6 29.0 44.6 29.2 31.8 61.0 36.8%

Net Income $m 324.0 321.2 645.2 334.6 340.9 675.5 4.7% Net finance costs $m (57.3) (58.6) (115.9) (50.1) (49.9) (100.0) (13.7%) Corporate overheads $m (16.4) (16.7) (33.1) (13.8) (16.0) (29.8) (10.0%) Tax expenses $m (5.7) 0.8 (4.9) (5.9) (8.1) (14.0) 185.7% Non-core $m 4.4 6.0 10.4 5.0 0.3 5.3 (49.0%)

Funds from Operations (FFO) $m 249.0 252.7 501.7 269.8 267.2 537.0 7.0% Property revaluations $m 146.0 286.1 432.1 379.9 231.7 611.6 41.5% MTM of interest rate derivatives $m 7.3 (81.3) (74.0) (65.7) 42.7 (23.0) (68.9%) Other $m 19.6 (11.3) 8.3 2.4 24.7 27.1 226.5%

Statutory NPAT $m 421.9 446.2 868.1 586.4 566.3 1,152.7 32.8% FFO cps 14.2

28.3 15.0

29.9 5.6%

DPS cps 11.0

22.5 11.5

23.4 4.0%

Notes: 1. Net income items include development income. Source: Company data, Macquarie Research, February 2017

Retail (48% of asset mix) – Solid operating metrics but FY17 lease expiries provides a risk

Retail NOI of $294.1m was down -0.5% on FY15 (1H16: 0.7%, FY15: 1.2%) primarily due to

the sale of Dandenong partly offset by increased stake in GWSCF and development

income. GPT divested Dandenong Plaza, which was a headwind to FY16 retail earnings (~$17m,

or 6% of earnings). This was partially offset by an increased stake in GWSCF from 20.2% to

25.3% in 2H16. The group also received $5.8m in development income (vs $0.8m in FY15) driven

by the sale of Rouse Hill residential development land ($8.1m).

Fig 18 Specialty sales growth moderated by 390bps across FY16 to 2.6%

Retail 1H15 FY15 1H16 FY16 Change on pcp

NOI A$m 127.8 251.7 120.9 246.7 (2.0%) Comparable income growth % 3.2% 3.0% 3.0% 3.8% 80bps Occupancy % 99.4% 99.2% 99.4% 99.6% 40bps Comparable total centre sales growth % 3.7% 4.1% 3.2% 3.2% (90bps) Comparable specialty sales growth % 5.9% 6.5% 4.2% 2.6% (390bps) Specialty occupancy costs % 17.8% 17.4% 17.1% 16.9% (50bps) Average re-leasing spread % (3.1%) (1.6%) -% 0.3% 190bps

Notes: 1. Part of the reason for the specialty sales slowdown (MAT for comparable malls) reflected a space down weight towards more mini-major categories. Source: GPT, Macquarie Research, February 2017

Targeting 3% like for like income growth in the medium term. GPT outlined a medium term

like for like income growth target of 3%. With specialty tenants currently achieving annual rent

increases of ~4.7% (on ~56% of the book assuming specialty accounts for 70% of income and

~20% expires per annum), this equates to ~2.7% of rental growth in isolation. Adding in leasing

spreads of +0.6% across ~20% expiring specialty book, as well as rental growth across anchor

tenants, mini-majors and ancillary income, it is possible to get to a 3.5% rental growth figure.

Under an assumption of rising property expenses and outgoings of only 2.5%, this leverage

results in total NOI growth of ~4.0% (which is above the group’s target of ~3%).


15 February 2017 10

Fig 19 GPT is targeting 3% LFL retail income growth … possible with 3.5% rent growth and 2.5% cost growth

Growth Growth rate assumption

Proportion of income assumption

Comment

Specialty escalators 2.7% 4.8% 56% Assumes spec is 70% of income and 20% lease expiry profile Specialty leasing spreads 0.1% 0.6% 14%

Anchor tenants 0.2% *1.0% *15% *MRE assumption

Mini-majors 0.2% 4.3% *5% *MRE assumption

Supplementary income 0.4% 4.0% 10%

Total 3.5% 100%

$m

Rent (FY16) 349

Rental growth (at 3.5%) 12

Total Rent 361

Property expenses & outgoings (FY16) (102)

Property expenses & outgoings growth (at 2.5%) (3)

Total property expenses & outgoings (105)

Total NOI (with growth) 256

FY16 NOI 247

NOI growth 4.0%

Note: 1. MRE assumptions for proportion of anchor tenant and mini-major income. 2. MRE assumptions for anchor tenant rental growth rate. 3. Assuming specialty accounts for 70% of income and has an expiry profile of 20% per annum.


The above analysis assumes stable occupancy as well as no down-time between lease expiry and

lease renewal. Although this analysis does have its limitations, it provides an indication of how

GPT may be able to reach its internal 3% growth target.

Occupancy across the portfolio rose to 99.6%, up 20bps from 99.4% at June 2016 (99.2% at

December 2015). The increase in occupancy was partially driven by a reduction in vacancy at

Highpoint (+120bps), Melbourne Central (+40bps) and Wollongong Central (+100bps). The group

has been able to backfill the space voided by Myer at Wollongong Central through the addition of

David Jones (not yet opened) as well as the opening of H&M, Rebel and Anaconda in 2H16. The

above mentioned increase in occupancy has been offset by declining occupancy at Chirnside (-

110bps), Norton Plaza (-90bps) and Parkmore Shopping Centre (-80bps).

Specialty MAT sales productivity rose ~5.5% to $11,036 per sqm, driving specialty occupancy

cost 50bps lower to 16.9%. GPT anticipates that on-going remixing of the portfolio will lead to

increased sales and rents, however we have previously written on the headwinds facing the retail

sector and in-turn retail landlords (see: Listed property sector - Walking the tightrope).

Leasing spreads continue to improve, and are now marginally positive (+0.3%), an improvement

on the 0% growth in 1H16 and -1.6% in FY15. The group negotiated 504 deals in FY16, with the

average annual fixed increase remaining flat at 4.8% (FY15: 4.8%).

Comparable specialty sales growth of 2.6% was lower than the 3.7% recorded at September

2016 (4.2% at June 2016; 6.5% at December 2015). Jewellery (+14.5%) and General Retail

(+13.9%) were the best performing categories in FY16, with general retail driven by cosmetics

sales at retailers such as MAC and Mecca. Sales in apparel declined by -1.2% (vs -0.2% at

September 2016) which is was driven by: i) increased remixing away from apparel; and ii)

increased competition from mini-majors. The group did note that on a per sqm basis, apparel

sales have increased by 5.2%.

The mini major category achieved growth of 12.6%, which is an increase on the 8.9% achieved

at September 2016 (likely due to internationals and better performing tenants such as JB Hi-Fi).

Although the MAT growth of the apparel mini-majors are initially strong, we continue to highlight

sales per store decline as the asset stabilises (see: Listed Property Sector - Uniqlo needs

some glow). We continue to highlight the headwinds created by the international mini-majors on

domestic apparel retailers and in turn retail landlords (see: Listed property sector - Walking

the tightrope).

Sales growth for the department stores has remained strong, with sales up 4.2% vs 4.3% in

September 2016 (June 2016: 3.7%; December 2015: 1.9%) while DDS sales growth remains

anaemic (Dec-16: -2.6%; Sep-16: -0.7%; June-16: +0.7%; March-16: -0.7%).

FY17 lease expiries rise due to holdovers. The next 12 months may prove to be a challenging

period for GPT across its retail portfolio with 21% of all leases expiring (includes holdovers) and

26% of specialty leases expiring or expired (includes holdovers).


15 February 2017 11

FY17 total centre and specialty lease expiries have increased over the past six months (see

below charts), driven by rising holdovers. For example, as at 1H16 specialty lease expiries in

FY16 were sitting at 16% and 2017 lease expiries were 18%. With FY17 specialty lease

expiries rising to 26%, this implies that holdovers were responsible for the increase in FY17

lease expiries as at FY16. Whilst GPT indicated some of these holdovers are enforced by

GPT as they seek a better tenant or commence development etc, we believe it is a sign that

tenant and landlord can’t agree terms on new leases.

Fig 20 21% of total centre leases expire in FY17

Fig 21 26% of specialty leases expire in FY17



Several of the assets that have a high level of leases expiring also have very high levels of sales

productivity (eg Charlestown Square, Sunshine Plaza and Westfield Penrith) although there are

also a couple that will likely prove problematic given much lower sales productivity (eg Northland

and Parkmore), particularly given the specialty occupancy cost ratio is ~19%.

Fig 22 Northland and Parkmore screen as having heightened leasing risk

Fig 23 Specialty WALE has remained stable at 2.7 years

Source: GPT, Macquarie Research, February 2017 Source: GPT, Macquarie Research, February 2017

The stabilisation in the specialty WALE at 2.7 years is a positive, in light of the increase in

expiries in FY17.

On the result call management indicated that headwinds still remain to the retail

environment and noted that 16 retailers (64 tenancies) folded during in FY16. Although the

group was able to increase occupancy despite these closures, we believe the structural issues

facing the retail environment (see: Listed property sector - Walking the tightrope) will

continue to have an impact on specialty leasing spreads, especially in light of the groups elevated

FY17 lease expiry profile.

The retention rate rose to 75%, compared to 69% at 1H16 (and 70% at FY15). This heightened

retention rate is likely to be influenced by holdovers.

12%14% 15%

13%15%

31%

21%

16%13%

15%

35%

-%

5%

10%

15%

20%

25%

30%

35%

40%

2016 2017 2018 2019 2020 2021+

1H16 FY16

Lease expiries - Total centres (%)

16%18%

17%16% 16%

18%

26%

17%15% 15%

27%

-%

5%

10%

15%

20%

25%

30%

2016 2017 2018 2019 2020 2121+

1H16 FY16

Lease expiries - Specialties (%)

0%

5%

10%

15%

20%

25%

30%

35%

40%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Specialty MAT ($/sqm) FY17 lease expiry

Specialty productivty ($/sqm) FY17 lease expiry (%)

3.23.0 2.9

2.7 2.6 2.5 2.5 2.5 2.52.7 2.7

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

Specialty WALE (Years)


15 February 2017 12

Total retail developments (underway, planned and future) are ~$1.2bn at December 2016.

Along with developments underway (Macarthur Square shopping centre estimated total

development cost $240m, GWSCF 50% share) and Sunshine Plaza ($400m, GPT 50%), GPT has

a number of developments due to commence construction shortly. This includes a $250m

expansion of Rouse Hill Town Centre (to commence in 1H17, GPT 100%) and a $110m

development at Melbourne Central (GPT: 100%). The future development pipeline also includes a

$334m development at Highpoint.

Rouse Hill development revised. The development cost of Rouse Hill has declined by ~$50m as

a result of: i) a change in scope of the development; and ii) the exclusion of the residential portion

of the development from these costs (GPT expects to incorporate ~70 apartments into the

development).

GPT still aiming for a stabilised yield on cost of >6% at Sunshine Plaza. Consistent with

recent research (see: Listed property sector - Walking the tightrope), we remain cautious of

development returns, especially on assets that are delivering a yield on cost similar to its current

cap rate. Indeed, the expected yield on cost at Sunshine Plaza is just 50bps above the current cap

rate (the cap rate declined by 25bps to 5.50% in the six months to December 2016). Positively, the

development at Sunshine Plaza is a ‘bolt-on’ and therefore will have limited impact to trading at

the mall during development (ie. limited downtime).

Office (39% of asset mix) – Occupancy build supports growth

Office NOI of $225.0m is up 6.9% against FY15 (1H16: +0.0%; FY15: 8.5%; 1H15: 8.8%) with the

benefit of strong LFL growth and the lease up of MLC aided by part period impact of increased

stake in GWOF. Comparable income rose 6.3% in FY16 (1H16: 6.0%; FY15: 6.3%; 1H15: 8.1%).

Fig 24 Office NOI growth driven by strong LFL growth on the back of lease up

Office FY15 1H16 FY16 Change on pcp

NOI A$m 153.8 83.2 167.8 9.1%

Comparable income growth % 6.3% 6.0% 6.3% 0bps

Occupancy % 96.8% 97.3% 97.0% 20bps

WALE years 5.8 5.3 5.5 (0.7)


Occupancy in the portfolio declined ~30bps in the last six months to 97.0% (Sep-16: 98.1%;

Jun-16: 97.3%; Mar-16: 97.0%; Dec-15: 96.0%) with lease up in 1 Farrer Place (FY16: 91.7%;

1H16: 77.8%) and MLC (FY16: 99.5%; 1H16: 97.8%) offset by expiries at Melbourne Central

Tower (FY16: 94.9% leased; 1H16: 99.3% leased) and CBW (FY16: However we note that these

reported occupancy numbers include signed leases and are not reflective of in-place income. The

actual rent paying occupancy is 93.6% which is below the reported occupancy of 97.0% (including

3.4% of signed leases) and heads of agreement-occupancy of 98.1%. The group indicated that

actual rent paying occupancy is expected to stay at the 94% level given upcoming expiries in

4Q17.

From an income security perspective, only ~15% of GPT’s office leases expire in the next 24

months which we view as a positive. Although, we highlight lease expiries in 2020 and 2021 are

elevated which occur in a period that is matched against expected supply completions.


15 February 2017 13

Fig 25 Only 15% of office leases expire in next 2 yrs Fig 26 Occupancy build due to 1 Farrer Place

Notes: 1. Includes signed leases Source: Company data, Macquarie Research, February 2017

Notes: 1. Includes signed leases Source: Company data, Macquarie Research, February 2017

The key expiries over the next couple of years are provided below with Melbourne Central Tower,

Australia Square and Riverside Centre (QLD) the biggest risks to GPT headstock.

Fig 27 Assets with >25% expiries in the next 2 years

Asset Expiry next 24

months (%)

Estimated income (per annum $m)

Income at risk ($m)

GPT Australia Square 27% 22.8 6.2 Melbourne Central Tower 27% 31.9 8.6

GWOF HSBC Centre 31% 26.9 8.3 2 Southbank Boulevard 46% 13.3 6.1 530 Collins St 27% 32.4 8.7 Riverside Centre 35% 37.0 13.0 545 Queen St 79% 6.1 4.8

Total 41.0


Not acquiring the remaining 50% stake in MLC. GPT mentioned that its capital partner at MLC (QIC) had provided the group with a proposal to acquire the remaining 50% that it did not already own as part of its pre-emptive rights. GPT notified QIC yesterday that it would not proceed with the proposal. We view this as a positive decision by GPT given the lease up of the building to date (99.5% including HoA) is likely to result limited value creation.

Valuations partially driven by income growth. The group reported total uplift in office valuations of $336.5m or 9.1% which took the total portfolio to ~$4,340.7m (including GPT’s stake in GWOF). The valuations were 42% driven by income growth which is a positive outcome. The WACR compressed 39bps to 5.55% over the year.

Consistent with our recent research (see: Listed property sector - Walking the tightrope, page 96),

GPT referenced that the Sydney and Melbourne office markets are showing stronger signs of

tenant demand. This strong demand combined with limited net supply over the next 3 years will

lower vacancy and support continued growth in effective rents.

We believe GPT should be able to re-lease space at improved spreads, especially moving into

2017 and 2018 (refer to our re-leasing spread analysis above). The group referenced its

technology tenant base are looking to grow space.

8%7%

11%

14%

17%

6% 6%

9%

3%

19%

-%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+

Lease expiries - Office (%)

0.6% 0.1%1.7%

13.9%

(4.4%)

(2.0%)

0.2%

(10.0%)

(5.0%)

-%

5.0%

10.0%

15.0%

AustraliaSquare

CitigroupCentre

MLC 1 FarrerPlace

MelbourneCentralTower

CBW One OneOne Eagle

St

Occupancy change over six months (%)


15 February 2017 14

Fig 28 Entering an era of limited supply… Fig 29 Sydney leasing demand strong

Source: JLL Research, Macquarie Research, February 2017 Source: JLL Research, Macquarie Research, February 2017

Industrial (13% of asset mix) – LFL income growth improving

Industrial operating income of $95.4m is up 0.8% on FY15 (1H16: -3.3% FY15: 6.4%). Like-for-like

income growth improved to +1.4% (1H16: +0.1%; FY15 +0.7%) with occupancy increasing to

95.3% (1H16: 92.7%; FY15: 92.3%; June 2015: 92.8%). Headline NOI was ahead of comp NOI

growth due to the full-period impact of development completions in 2015.

Fig 30 Industrial soft but better than prior periods…metrics better due to asset sales

Industrial FY15 1H16 FY16 Change on pcp

NOI A$m 91.4 46.0 93.1 1.9%

Comparable income growth % 0.7% 0.1% 1.4% 70bps

Occupancy % 92.3% 92.7% 95.3% 300bps

WALE years 8.2 7.9 7.9 (0.3)


Headline NOI will also be supplemented in 2017 by the expected completion of four industrial

assets with a total forecast cost of $125m. Three of these assets are expected to complete in

1H17 with one in 2H17. Refer table further below for greater detail on the development pipeline.

There has been solid progress on reducing the expiry profile with ~24% of expiries in FY17 and

FY18, down from 27% as at June 2016.

Fig 31 ~24% of industrial expiries in the next 24 months


Funds management – limited FUM growth in future periods

GPT reported $61.0m of funds management net income (including the fund distributions), up 36.8% on the pcp

on the back of 4% growth in FUM (to $10.4b) and GWOF performance fees. Fee income was also supported by

a higher base management fee from the GWOF vehicle (effective 1 July 2016).

7.7%

5.4%

3.9%4.8% 5.1%

9.8%

2.9%3.3%

3.1%

7.5%

1.9% 1.8% 1.1%

5.1%

-%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

End 2016 End 2017 End 2018 End 2019 End 2020 End 2021

Low Mid High

%, Sydney CBD vacancy (by area)

82

(150)

(100)

(50)

0

50

100

150

200

250

Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15

Annual net absorption 20-Yr Average

'000 sqm, Net absorption (Sydney)

17%

10% 11%9%

4% 3% 3%

40.0%

11%13% 12% 12%

3% 2% 3%

44.0%

-%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026+

1H16 FY16

Lease expiries - Industrial (%)


15 February 2017 15

FUM growth was predominantly in 1H16 due to strong property revaluations and

developments while 2H16 saw headwinds to FUM growth due to asset divestments (Westfield

Woden). We forecast FM income to decline in FY17 as the group cycles the GWOF

performance fee.

Fig 32 Funds management income supported by GWOF performance fees

GWOF GWSCF

Unit Dec-15 Jun-16 Dec-16 Dec-15 Jun-16 Dec-16

Number of assets # 19 18 18 9 9 8

Property value A$bn 5.8 6.1 6.6 3.8 3.8 3.8

Weighted average cap rate % 6.03% 5.68% 5.55% 5.73% 5.73% 5.46%

Gearing % 14.8% 13.7% 17.8% 14.2% 14.2% 11.5%

GPT ownership interest % 20.4% 20.4% 24.5% 20.2% 20.2% 25.3%

A$m 980 1,042 1,283 623 623 823

12-month total return (post-fees) % 14.9% 18.6% 14.5% 4.4% 4.4% 11.5%


Increased stakes in both funds. During the period, GPT increased its stakes in GWOF to 24.5%

(prior: 20.4%) and GWSCF to 25.3% (prior: 20.2%). Our previous research had indicated that both

stakes would be ~1% accretive to GPT’s earnings (higher co-investment income). While the group

did not provide any colour around whether it would increase its holdings in either fund, it did

mention that the current stakes are satisfactory although it not rule out participating further in the

upcoming GWSCF liquidity review (31 March 2017).

GWSCF fund terms review… unitholder vote to occur on 20 February 2017. The terms of

GWSCF were said to be well progressed with no change to the base fee (45bps of GAV) although

the performance fee structure will be removed (despite no performance fee payable due to the

performance of the fund). All other key terms are expected to remain unchanged. GPT will not

vote on the new terms with its 25.3% equity stake. The minimum threshold is 75% unitholder votes

to approve the new terms. There have been no proxies received yet.

GWSCF liquidity review window opening in March. This is a 10-year liquidity review window

and we note the fund has been a poor performer including a problematic retail development

project at Wollongong Central (20% writedown). GPT invested $157m in GWSCF last year and

there is a risk of elevated redemptions in March that may require a further stake increase from

GPT, gearing increase, asset sales etc to fund any shortfall.

Liquidity on the secondary market. The group indicated >$850m of secondary units in GWOF

and GWSCF (combined) transacted to both new and existing unitholders. Over $500m of units

transacted in GWOF which implies $350 in GWSCF.

No longer managing GMF. During 1H16, GPT sold its 13% interest in GMF to GOZ. The group

has also entered into a facilitation deed ($9m) for the transfer of the management rights to GOZ.

GPT received $2.0m of management fees and $1.4m of FFO for managing GMF in FY16. GPT

ceased to manage GMF from 30 September 2016.

Development pipeline increases to $3.8bn

GPT continues to work on its development pipeline which now stands at $3.8bn (up from $3.5bn

at 30 June 2016). GPT’s share is ~$2bn. Main changes to the pipeline include:

Splitting out the residential component of the Rouse Hill development which explains the

$50m decline. The residential component ($50m) is not included in the pipeline but is

expected to yield ~70 apartments.

Acquisition of a ~2,400 sqm prime site in Parramatta for $31.2m which will see a 26,000 sqm

A-grade office tower developed on it for $212m (GPT: 100%). The end value is expected to be

>$220m with a yield on cost of >7%. Construction is expected to commence in 2018 with

completion in 2020.


15 February 2017 16

Fig 33 $3.8bn development pipeline…acquired Parramatta site for office development

Sub-sector FY15 1H16 FY16 FY16 vs

1H16

Underway Macarthur Square Retail 120 120 120 -%

Sunshine Plaza Retail 200 203 203 -% Wollongong Central Retail

70 68 (3%)

4 Murray Rose Avenue Office 86 86 96 12% Lot 2012 Eastern Creek Drive, Eastern Creek Industrial

42 42 -%

1A Huntingwood, Huntingwood Industrial

39 55 Whitelaw Place, Richlands Industrial

15

18-24 Abbott Road, Seven Hills Industrial

30 30 -% Total Underway 406 551 613 11% Planned

Rouse Hill Retail 300 300 250 (17%) Melbourne Central Retail

70 110 57%

Chirnside Retail 70 100 85 (15%) Casuarina Square Retail 230 110 110 -% MLC Office 75 75 35 (53%) 93-95 Phillip Street & 32 Smith Street, Parramatta Office

212

Austrak – Minto Industrial 15 15 15 -% Lot 21, Old Wallgrove Road, Eastern Creek Industrial

48 48 -%

Erskine Park (1 Lockwood Rd, 16-34 Templar Rd) Industrial 23 23 7 (70%) Erskine Park (Lot 11, Templar Rd) Industrial

12 13 8%

Austrak – Somerton Industrial 67 67 67 -% 1B Huntingwood, Huntingwood Industrial

19

Metroplex, Wacol Industrial 150 150 137 (9%) Wembley Industrial 124 124 113 (9%) Total planned 1,054 1,094 1,221 12% Future pipeline

Highpoint Retail 334 334 334 -% Parkmore Retail 30 30 30 -% Other

1,650 1,530 1,620 6%

Total future pipeline 2,014 1,894 1,984 5% Total development 3,474 3,539 3,818 8%


Successful delivery of these developments would be expected to be earnings-accretive for GPT in

light of the low interest rate environment which currently prevails. Notably, with a relatively narrow

spread between development initial yields and cap rates of existing assets, we expect total

development returns will be increasingly underpinning by final cap rate compression.

GPT’s average cost of debt in FY16 was 4.25%, which is ~5bps lower than at June 2016 and

~35bps lower than December 2015 (4.60%). This was due to lower fixed and lower floating

interest rates and longer duration debt (higher margin). Hedging is expected to average 53% in

2017. This is expected to increase to 66% in 2018 with the group expecting a small risk of interest

rate increases over the medium term. The group expects the WACD to remain steady at 4.25% in

2017 with higher reference rates offset by more favourable bank margins.

Fig 34 Conservative balance sheet metrics Fig 35 Hedge base rates increase in 2020+

31-Dec-15 30-Jun-16 31-Dec-16

Total debt 2,948 2,792 2,997

Gearing 26.3% 24.4% 23.7%

Look-through gearing 27.8% 26.2% 25.7%

Interest cover ratio 5.3x 6.3x 6.4x

Weighted average cost of debt 4.60% 4.30% 4.25%

Weighted average debt maturity 5.1 5.9 6.5

Credit rating (S&P/Moody's) A-/A3 A/A3 A/A3 1. Net debt ÷ total tangible assets less cash 2. Look-through net debt ÷ look-through total tangible assets less cash 3. EBIT ÷ gross finance costs excluding capitalised interest 4. Includes fees and margins 5. S&P/Moody’s

Source: Company data, Macquarie Research, February 2017 Source: Company data, Macquarie Research, February 2017

NTA per security increased 4.8% in the last six months

NTA increased 4.8% or 21cps to $4.59ps as at December 2016 mainly due to favourable property

revaluations with a minor tailwind from the negative MTM of interest rate derivatives in the half.

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Dec-1

6

Jun

-17

Dec-1

7

Jun

-18

Dec-1

8

Jun

-19

Dec-1

9

Jun

-20

Dec-2

0

Jun

-21

Dec-2

1

As at 30-Jun-16 As at 31-Dec-16

Average rate on hedged balance ex-margins (%)

Medium term hedge rates have increased dramatically...


15 February 2017 17

Fig 36 Cap rates fell by 31bps across GPT’s portfolio vs the pcp

Weighted average cap rate

(%) Fair value ($m) Average cap rate

change Average value change

Dec-15 Jun-16 Dec-16 Dec-15 Jun-16 Dec-16 1H17 vs

1H16 1H17 vs

2H16 1H16 vs 1H15 1H16 vs 2H15

Retail 5.58% 5.52% 5.39% 5,044 4,939 5,318 (19bps) (13bps) 5% 8%

Office 5.94% 5.58% 5.55% 3,710 4,034 4,341 (39bps) (3bps) 17% 8%

Industrial 7.03% 6.81% 6.54% 1,349 1,437 1,405 (49bps) (27bps) 4% (2%)

Total/Weighted average 5.91% 5.72% 5.60% 10,103 10,411 11,063 (31bps) (12bps) 10% 6%



15 February 2017 18

Fig 37 GPT financial summary

Item (A$m) FY15 FY16 FY17 FY18 FY19 FY20

Revenue Rent from investment properties 556.3 620.7 642.3 662.3 683.3 704.7 Revenue from hotel operations - - - - - - Property and fund management fees 66.0 68.6 75.2 78.3 81.5 84.7 Development project revenue 17.1 38.0 2.0 2.1 2.1 2.2 Development profits - - 10.0 10.0 10.0 10.0

Total segment revenue 639.4 727.3 729.6 752.6 776.9 801.6 Other Income Share of after tax profits of investments in associates and JVs 207.8 157.2 165.8 172.0 177.0 181.0 Interest revenue - associates and other investments 14.6 7.9 0.5 0.5 1.0 1.7

Total other income 222.4 165.1 166.3 172.5 178.0 182.7 Total segment revenue and other income 861.8 892.4 895.9 925.2 954.9 984.3 Implied operating costs (excl. mgmt and other admin costs) (161.7) (170.8) (158.1) (161.9) (166.0) (169.5) EBITDA (excl. mgmt and other admin costs) 700.1 721.6 737.8 763.3 788.9 814.7 Management and other administration costs (73.5) (68.0) (62.9) (64.3) (65.9) (67.3) Depreciation and amortisation expense - - - - - - Finance costs (117.7) (102.6) (121.9) (118.0) (125.4) (147.6) Income tax (expense) / benefits (5.5) (14.0) (6.2) (6.0) (6.4) (7.5) Other - - - - - - Segment result for the year 503.4 537.0 546.8 575.0 591.2 592.3 Other adjustments to reach net gain/loss for the year - - - - - - Distribution to exchangeable securityholders (1.7) - - - - -

FFO 501.7 537.0 546.8 575.0 591.2 592.3 Adjusted NPAT 469.3 487.4 497.2 525.4 541.6 542.7 FFO per share 28.3 29.9 30.5 32.0 32.9 33.0 FFO growth 5.5% 5.7% 1.9% 5.2% 2.8% 0.2% EPS 26.5 27.1 27.7 29.3 30.2 30.2 EPS growth 5.6% 2.6% 2.1% 5.7% 3.1% 0.2% DPS 22.5 23.4 24.6 25.9 26.7 26.7 DPS growth 6.1% 4.0% 5.1% 5.5% 2.8% 0.2%

Balance sheet summary FY15 FY16 FY17 FY18 FY19 FY20

Current Assets Cash & cash equivalents 79.3 56.3 70.0 70.0 70.0 70.0 Non-current assets classified as held for sale 197.2 - - - - - Other current assets 208.2 167.7 160.1 164.8 169.6 174.6 Total current assets 484.7 224.0 230.1 234.8 239.6 244.6 Non-current assets Investment properties 7,375.9 7,944.9 8,047.8 8,153.2 8,252.1 8,353.7 Investment in JV and associates 2,525.1 3,120.2 3,120.2 3,120.2 3,120.2 3,120.2 Other non-current assets 620.8 528.8 564.3 569.8 590.7 612.0 Total non-current assets 10,521.8 11,593.9 11,732.3 11,843.2 11,963.0 12,085.9 Total assets 11,006.5 11,817.9 11,962.4 12,077.9 12,202.6 12,330.4 Liabilities Borrowings 2,948.0 2,996.6 3,252.8 3,252.8 3,252.8 3,252.8 Other liabilities 533.4 539.1 323.5 329.8 342.2 357.4 Total liabilities 3,481.4 3,535.7 3,576.3 3,582.6 3,594.9 3,610.2 Net assets 7,525.1 8,282.2 8,386.1 8,495.3 8,607.7 8,720.2

Source: Macquarie Research, Company Data, February 2017

Stocks mentioned

Scentre Group (SCG AU, A$4.43, Underperform, TP: A$4.51)

Vicinity Centres (VCX AU, A$2.89, Underperform, TP: A$2.93)


15 February 2017 19

Macquarie Quant View

The quant model currently holds a neutral view on GPT Group. The

strongest style exposure is Valuations, indicating this stock is under-priced in

the market relative to its peers. The weakest style exposure is Price

Momentum, indicating this stock has had weak medium to long term returns

which often persist into the future.

Displays where the

company’s ranked based on

the fundamental consensus

Price Target and

Macquarie’s Quantitative

Alpha model.

Two rankings: Local market

(Australia & NZ) and Global

sector (Real Estate)

539/1032 Global rank in

Real Estate

% of BUY recommendations 40% (4/10)

Number of Price Target downgrades 1

Number of Price Target upgrades 1

Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score

(higher is better).

For the comparable firms this chart shows the key underlying styles and their

contribution to the current overall Alpha score.

Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions

signal that favours analysts who have more timely and higher conviction

revisions. Current score shown below.

Breakdown of 1 year total return (local currency) into returns from dividends, changes

in forward earnings estimates and the resulting change in earnings multiple.

What drove this Company in the last 5 years How it looks on the Alpha model

Which factor score has had the greatest correlation with the company’s

returns over the last 5 years.

A more granular view of the underlying style scores that drive the alpha (higher is

better) and the percentile rank relative to the sector and market.

Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])

Fu

nd

am

en

tals

Quant

Local market rank Global sector rank

Attractive

-0.2

0.1

0.1

0.2

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

GPT Group

Investa Office Fund

Dexus Property Group

Scentre Group

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%

GPT Group

Investa Office Fund


Scentre Group

Valuations Growth Profitability Earnings

Momentum

Price

Momentum

Quality

0.7

-0.4

0.8

-0.2

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0

GPT Group

Investa Office Fund


Scentre Group

-40% -30% -20% -10% 0% 10% 20% 30% 40%

GPT Group

Investa Office Fund


Scentre Group

Dividend Return Multiple Return Earnings Outlook 1Yr Total Return

-25%

-18%

-15%

-14%

28%

29%

29%

36%

-40% -20% 0% 20% 40%

⇐ Negatives Positives ⇒

Momentum 12 Month

Momentum 6 Month

Change in PPE FY0

Net Income Margin NTM

Price Upside

Price to Earnings NTM

Price to Cash LTM

PEG Ratio Inverted

0 1

Technicals & TradingRisk

LiquidityCapital & Funding

QualityPrice Momentum

Earnings MomentumProfitability

Growth

ValuationAlpha Model Score

1.07-0.07

-0.95-0.13

-0.27-0.41

-0.12-0.03-0.38

0.04-0.16

0 1

Normalized

Score

0 50 100

Percentile relative

to sector(/1032)

0 50 100

Percentile relative

to market(/423)


15 February 2017 20

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2016

AU/NZ Asia RSA USA CA EUR

Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients)

Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients)

Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients)

GPT AU vs ASX 200 Prop, & rec history

(all figures in AUD currency unless noted)

SCG AU vs ASX 200 Prop, & rec history


VCX AU vs ASX 200 Prop, & rec history


Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, February 2017

12-month target price methodology

GPT AU: A$5.09 based on a NAV methodology

SCG AU: A$4.51 based on a NAV methodology

VCX AU: A$2.93 based on a NAV methodology

Company-specific disclosures: GPT AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of GPT Group's equity securities. SCG AU: Macquarie Group Limited together with its affiliates beneficially owns 1% or more of the equity securities of Scentre Group Ltd. VCX AU: MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Federation Centres Ltd with investment advisory services in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.

Date Stock Code (BBG code) Recommendation Target Price 15-Aug-2016 GPT AU Underperform A$5.16 13-Jul-2016 GPT AU Neutral A$5.00 14-Apr-2016 GPT AU Neutral A$4.99 03-Mar-2016 GPT AU Neutral A$4.82 21-Jan-2016 GPT AU Outperform A$4.95 18-Aug-2015 GPT AU Outperform A$4.76 23-Feb-2015 GPT AU Outperform A$4.53 21-Jan-2015 GPT AU Outperform A$4.44 06-Jan-2015 GPT AU Outperform A$4.37 29-Oct-2014 GPT AU Outperform A$4.33 24-Oct-2014 GPT AU Outperform A$4.19 12-Aug-2014 GPT AU Outperform A$4.17 14-Feb-2014 GPT AU Outperform A$4.06 29-Jan-2014 GPT AU Outperform A$4.13


15 February 2017 21

Target price risk disclosures: GPT AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. SCG AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. VCX AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.

Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research, , is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures © Macquarie Group

This publication was disseminated on 14 February 2017 at 13:38 UTC.

GPT Group - Macquarie · flat at 4.8% (FY15: 4.8%). GPT reported headline net gearing of 23.7% as...

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