The GPT Group (GPT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I wish to extend a warm welcome to all our securityholders participating in today's meeting. My name is Vickki McFadden, and I am the Chairman of the GPT Group. I am advised by the company secretary that we have a quorum present and therefore declare the meeting open. I would like to commence by acknowledging the traditional owners of the land on which we are formally conducting this meeting, the Gadigal people of the Eora Nation. Recognizing that you may be participating in this meeting on land with traditional custodians, I pay my respects to each of their Elders past, present and emerging. I would also like to extend that respect and welcome to any First Nations people who are participating in the meeting today. The safety, health and well-being of our staff and our stakeholders is paramount particularly in light of the coronavirus pandemic. Accordingly, this year's AGM takes a somewhat different format. For the first time, GPT is using an online platform to participate in the meeting, which enables securityholders to view the meeting, to vote and to ask questions online. For those of you who have a question that you would like to put to the meeting today on either a particular resolution or a general business -- or a matter of general business, we suggest that you enter your questions now, and we will address them at the appropriate time during the meeting. On behalf of the Board, I express our appreciation of your understanding of the changes we have made to the meeting format. It is pleasing to see that Australia has made great progress in containing the spread of the virus. But we remain in uncharted territory, and the health and well-being of stakeholders remains our first priority. I am joined in the room at GPT's offices by the Group CEO and Managing Director, Bob Johnston; our Chief Financial Officer, Anastasia Clarke; our General Counsel and Company Secretary, James Coyne; and Ms. Sue Horlin, representing the group's external auditors, PwC. I would like to welcome our fellow directors who are participating via the webcast, Gene Tilbrook, Tracey Horton, Michelle Somerville, Angus McNaughton and Mark Menhinnitt. Other members of the executive leadership team and staff of GPT are also participating by webcast. As I'm sure you will agree, these are extraordinary and challenging times for all Australians. In a matter of weeks following the release of the group's 2019 full year results, we are confronting a very different operating environment brought on by the COVID-19 pandemic to that which we had envisaged at the time of our results announcement. Throughout March and April, the government announced health and economic measures to both restrict the spread of the virus and to support business, particularly small and medium enterprises or SMEs. Clearly, there is no precedent to the current situation. But I am pleased to advise that GPT acted quickly and decisively in response to the pandemic to ensure that the health and safety of our people, our tenants and the public was not compromised. As a result of the rapid change in our operating environment and given the uncertainty and unpredictability of the events and the outlook, on the 19th of March, we withdrew our earnings and distribution guidance for the year ending the 31st of December 2020. In early April, the National Cabinet announced a mandatory Code of Conduct for commercial tenancies to help small to medium enterprises deal with the impact of COVID-19 restrictions. We are engaging with our tenants in a productive and considered way and balancing the needs of all stakeholders in this process. There is much work ahead of us given the number of tenants involved and the complexities of the legislation. There is no doubt that the pandemic and the measures introduced by the government will have a significant impact on GPT's operations, particularly our retail assets. I want to emphasize, however, that GPT remains in a strong financial position with approximately $1.3 billion in cash and undrawn facilities and only $5 million of debt needing to be repaid before the end of 2021. The group has also been increasing its exposure to the office and logistics sectors over recent years. And this strategy has increased the resilience of the business. Given the unprecedented nature of the current situation, the group has also implemented a variety of initiatives to reduce costs and to defer nonessential capital expenditure across the business. This has included a review of remuneration, and the decision has been taken to withdraw the 2020 short-term and the 2020 long-term incentive schemes for executives across the business. This is a substantial reduction in salary packages for senior executives. Accordingly, we will not be seeking approval at this meeting for a grant of securities for the CEO in terms of the long-term incentive plan. The CEO remains well aligned with securityholders given the current plans in place, and the minimum securityholding requirement has been exceeded. While the impacts of COVID-19 is a significant focus for the Board, Board succession and renewal is an important aspect of our governance focus, and there has been a process of renewal underway over the past 2 years. We announced the appointment of Mark Menhinnitt as a nonexecutive director in September 2019. Mark brings a wealth of investment management and real estate experience to GPT drawn from his 30-year career at Lendlease. Mark stands for election at this meeting. Lim Swe Guan retired from the Board in December after serving for a total of 7.5 years. I would like to take this opportunity to thank Swe Guan for his contribution to the group. Yesterday, we announced the appointment of Robert Whitfield as a nonexecutive director. Rob has significant banking and finance experience in senior management roles across the public and private sectors, and his appointment will take effect from the 14th of May. Rob will stand for election at next year's AGM. We are grateful to Gene Tilbrook who has agreed to stand for reelection today, and Gene will step down from the Board before the end of this calendar year. In my meetings with investors during February and March this year, it was clear that climate change and how GPT is responding to climate change was of particular interest to our investors. This is a matter of importance to the Board, and I am pleased to advise that GPT maintains a leadership position in the property industry for delivering sustainable business outcomes. The group recently ranked third globally in the Dow Jones Sustainability Index and achieved a Global Real Estate Sustainability Benchmark survey outcome that places us in the top 20% of respondents. The target -- the group has set a target of being carbon neutral by 2030, with our Wholesale Office Fund on track to achieve a certified carbon-neutral position by the end of this calendar year. We also released our inaugural climate disclosure report earlier this year. The report outlines the steps we are taking to identify, assess and manage climate change risks and opportunities and is aligned to the recommendations of the Task Force on Climate-Related Financial Disclosures. Before I hand over to Bob, I would like to extend my thanks for your ongoing support of the GPT Group. I would also like to extend my thanks to my Board colleagues and the management team for their efforts in steering the business particularly through the challenges that face all businesses at this time. I would now like to ask Bob to address the meeting.

Thank you, Vickki, and good morning, everyone. I would also like to thank our securityholders for joining our webcast meeting today. It's unfortunate that we are unable to conduct the meeting in a normal way, but clearly, these are unusual times, and health and safety considerations obviously are a priority for GPT. As an owner, developer and manager of assets in many locations across Australia, I would also like to acknowledge the traditional custodians of the lands on which our business and our assets operate. We made excellent progress in executing on our strategy during 2019. And this is reflected in the results we presented to the market in early February. We delivered strong portfolio income growth, sold our stake in the MLC building, successfully executed an equity raising for $867 million, acquired a stake in the Darling Park assets and grew our logistics portfolio by approximately 30%. Growing our logistics portfolio through acquisitions and development remains a key focus for the group. During 2019, we also secured 36 hectares of land in Western Sydney and 48 hectares in Melbourne's west for future developments. Our logistics pipeline has an expected end value now in excess of $1 billion when fully developed. We are presently pleased -- extremely pleased with the acquisition of the 25% interest in Darling Park Towers 1 and 2, along with Cockle Bay Wharf. The office towers are modern, premium-grade assets and were acquired on an attractive yield of 5.3% and have structured rental increases averaging 4% per annum. The acquisition was particularly attractive given there's an opportunity to create a new office tower on the Cockle Bay Wharf site. We've also continued to make good progress with the development of the new landmark office tower at 32 Smith Street in the Paramatta CBD with practical completion expected in early 2021. The development is currently 64% leased and has attracted solid tenant interest for the balance of the space. It's been a busy period for the group. However, these excellent outcomes have been somewhat overshadowed recently by the significant and far-reaching effects of the coronavirus. The pandemic is having a profound impact on the Australian economy and is being felt by all businesses and industry. Fortunately, GPT entered this period with high portfolio occupancy, low leverage and a strong liquidity position. Despite this enviable position, we have not been complacent, and we have moved quickly to respond to the current environment. Firstly, the health and safety and well-being of our people, customers and the public has been our priority. We responded immediately to the physical distancing measures recommended by government across our assets and commenced work-from-home arrangements for the majority of our staff in mid-March. We have provided assistance to essential businesses that needed to continue to trade from our assets and increased cleaning and security measures to ensure they could do so safely. While all of our assets remain open, physical occupancy during March and April has understandably been low. Our teams have found, though, innovative ways to support our tenants and customers. Drive-through click-and-collect arrangements for restaurants is just one example of this. In April, the National Cabinet announced the mandatory Commercial Tenancy Code to provide relief to small -- for small to medium enterprises that are suffering financial stress or hardship. The code requires building owners like GPT to provide cash flow relief to qualifying SMEs proportionate to their reduction in the revenue for the COVID-19 period. The cash flow relief is to be provided via a combination of rent forgiveness and deferment unless otherwise mutually agreed. The code has now been legislated in a number of states. And recently, New South Wales and Victoria have implemented regulations to support the code and defined a 6-month period for its application. SME tenants across our portfolio are estimated to account for approximately 21% of our office income, 14% of our logistics income and 36% of our retail net income. We are engaging with our tenants in a proactive and considered way so that we and our tenants emerge from the pandemic in a position to grow our respective businesses. The process has commenced, but it will take some time to conclude given the complexity of the application of the code, the nuances of the regulations in each state and the number of tenants involved. In the coming weeks, we do expect that we will see many businesses recommence operations as governments relax restrictions in a measured way. In particular, we expect to see more retail stores open, albeit physical distancing measures will still need to be adhered to. As of this week, we have more than 50% of our retail stores across our shopping center portfolio open, up from 35% at the end of April. As a result of the change in the economic outlook, we have taken the decision to defer the commencement of both the Rouse Hill Town Centre mixed-use development and the Melbourne Central office and retail developments until market conditions are more supportive. We have implemented our measures to reduce discretionary spend across the group, deferring all nonessential capital expenditure and suspending recruitment. In addition, as noted by Vickki, both the short-term incentive program and the long-term incentive program for 2020 have been removed, resulting in substantial savings for the group. Despite these changes, management remains focused on delivering the best outcomes possible for securityholders. We have a committed executive group across GPT, who are delivering results in these challenging times. I'm proud of their resilience, the value they continue to demonstrate -- or the values they continue to demonstrate and the respect they have with our customers in dealing with them in a fair and equitable way. I'd also like to thank all our staff for their commitment and hard work as they continue to juggle the challenges of working from home as well as their work commitments. I'd also like to acknowledge and thank our Board for their support and guidance to management. As you can imagine, the demand on their time, experience and expertise has intensified during this period. As I noted earlier, GPT entered the pandemic period in a very strong position. The economic shock from COVID-19 has, however, created a great deal of uncertainty. And accordingly, we have withdrawn our guidance for earnings and distributions for this year. We do believe that significant government stimulus that has been applied as well as the level of cooperation between all levels of government to reboot the economy provides room for optimism. We will continue to manage the business prudently and take the necessary steps to safeguard the business while the uncertainty prevails. Thank you. And now I'd like to hand back to our Chairman.

Thank you, Bob. Turning now to the formal business of the meeting. As I noted at the outset of the meeting, we have adopted revised procedures for this year's AGM. For securityholders who did not complete and lodge a proxy form prior to the meeting, you can cast your vote using the electronic voting card that you received when you registered online today. If you have any questions about casting your vote online, please refer to the online platform guide or call us on the numbers set out in the guide or on the screen in front of you. The results of the polls will be declared and released to the Australian Securities Exchange later today. Some of you participating in the meeting today will have questions, and we will ensure there is plenty of time for you to ask them. Initially, questions will be limited to the formal items of business. And once we have completed those items, I will invite any general questions that you may have. Those eligible participants who have registered as a securityholder or proxyholder can submit questions to the meeting by selecting the Ask A Question tab. Ladies and gentlemen, a copy of the Notice of Meeting has been distributed. I will take it as read and now move to the matters set out in the notice. Item 1 calls for the receipt of the director's report and financial statements for the year ended the 31st of December 2019. While there is no resolution for this item, there is an opportunity for discussion on the director's report, the auditor's report and the financial statements. Are there any questions?

Chairman, there are no questions at this time.

Thank you. We'll take a brief pause to allow participants to enter their questions on the online platform.

Chairman, there are no questions at this time.

Thank you. With no questions, I will now move to item 2 in the notice. Before we proceed with the resolutions today, I wanted to remind you of a change of the resolutions this year. As outlined in our Notice of Meeting, there are no resolutions relating to the CEO's long-term incentives this year. Given the current circumstances and the impact on the operating environment as a result of the impact of COVID-19, the CEO has made the decision to decline to receive an LTI grant in 2020, which would otherwise have operated for the 3-year period for 2020 to 2022. Moving now to resolution 1. Resolution 1 concerns the reelection of Gene Tilbrook as a director. Gene joined the GPT Board as an independent nonexecutive director in 2010 and is currently Chairman of the Sustainability and Risk Committee and a member of the Nominations Committee and Audit Committee. Gene's extensive experience in finance, corporate strategy, investments, capital management and risk management is of particular importance to the group given the current market and economic events that we are dealing with. It is intended that Gene will retire as a director of the GPT Group by the end of this calendar year. Are there any questions?

Chairman, we have received a question from the Australian Shareholders' Association, which I will read now. The ASA thinks Gene Tilbrook has been a good director, but why did you have him stand for reelection until a new director is appointed? You have now found one, Robert Whitfield, and he starts tomorrow. So we are letting Mr. Gene Tilbrook to serve for 24 hours.

Thank you for that question. We, the Board, feels very privileged that Gene has offered to stand for reelection today. At the time of distributing the Notice of Meeting, we had not finalized the selection of the Board renewal process of Mr. Whitfield's appointment. Also, in these very difficult times, we thought it was essential at the Board that we had the ongoing contribution of Gene. So we are grateful for him for standing, and he will leave the Board by the end of the year. Thank you.

Chairman, there are no further questions at this time.

Thank you. We will just take a brief pause to see if there are any further questions. The proxy results are now shown on the screen. I put resolution 1 to the meeting as an ordinary resolution of the company. As advised, all resolutions will be based on a poll, and I ask that you now record your vote for resolution 1. [Voting]

Moving to resolution 2. Resolution 2 concerns the election of Mark Menhinnitt as a director. Mark was appointed to the Board as an independent nonexecutive director in October 2019. Mark's depth of the industry knowledge encompassing investment management, construction, development and urban regeneration, gained both in Australia and overseas, is of significant value and complements the Board's existing mix of skills and experience. Are there any questions?

Chairman, there are no questions at this time.

Thank you. Again, we will take a brief pause to allow participants to enter any online questions.

Chairman, there are no questions at this time.

Thank you. The proxy results are now shown on the screen. I put resolution 2 to the meeting as an ordinary resolution of the company. Can I please ask that you now record your vote for resolution 2? [Voting]

Moving to resolution 3. Resolution 3 is for the adoption of GPT's remuneration report for the year ended the 31st of December 2019. The remuneration report is part of the director's report and commences on Page 15 of the annual financial report. It summarizes GPT's remuneration policies and provides detailed information on the compensation of key management personnel and directors. The Board considers that the remuneration arrangements and outcomes described in the remuneration report provide a balanced compensation platform, enabling us to be competitive and to attract talent in the property sector whilst aligning remuneration to the achievement of GPT's strategic objectives and the returns for our investors. We commend the report to you. Are there any questions?

Chairman, we have received a question from Allan Goldin representing the Australian Shareholders' Association. He says, "I am holding proxies for 1.1 million securities. The ASA applauds the decision to cancel the 2020 short-term incentive and the 2020 long-term incentive resulting in a reduction in senior executives' remuneration as it is important that at this time, all should share the economic pain arising from the COVID-19 closures. Have the directors also taken a pay cut?"

Thank you. This has been a matter considered at the Board. The Board is meeting very frequently at the moment with management so that we can navigate the best possible way through these uncharted waters and very difficult times. We've also benchmarked the directors' fees against our peers. And in aggregate, given the small size of our Board, the Board fees are significantly below most of our competitors. For those reasons, we have not, at this stage, reduced the remuneration for directors.

Thank you. Chairman, there are no further questions at this time.

Thank you very much. Again, I'll take a brief pause. The proxy results are now shown on the screen. I now put resolution 3 to the meeting as a nonbinding resolution of the company. Can I please ask that you now record your vote for resolution 3? [Voting]

We will now take any general questions from securityholders. If you have a general question, please now enter your question onto the online platform if you have not already done so.

Chairman, prior to the meeting, we received a number of questions from the Australian Shareholders' Association, which I will now read. Question one. For the past couple of years, you have been working to reposition your portfolio in order to decrease the percentage of assets held in retail with a higher percentage in logistics. Has COVID-19 caused you to accelerate this shift?

Thank you. Our strategy remains to grow our position in the logistics sector. And we will in continue to look for opportunities to do this. In 2019, we grew our logistics portfolio by approximately 30%. And we were also successful in securing development sites, which, when completed, will add more than $1 billion to our logistics portfolio. The next question?

Question two, we applaud the decision to preserve funds by holding up the Rouse Hill development and Melbourne Central. Do you have any feel for when you will undertake these developments or indeed if you ever will?

Thank you. I might ask Bob to answer that question. Thank you. Bob?

Thank you, Chairman. Look, they remain great opportunities for the group, but we did think it was the prudent decision to suspend the planned developments for both those sites. It's very premature at this stage to determine when we will actually reactivate those opportunities. But they do remain great opportunities for the business, and at some point, we would expect that they will be -- would be activated. But clearly, times are a little uncertain, and we thought it was the prudent decision to suspend the developments at this point.

Question three. The $320 million office development at 32 Smith Street Parramatta is scheduled for completion by the end of 2020. The last information to the market said you had commitments for 64% of the building. Has this number increased or decreased? And do you envisage any problems in having occupancy of at least 98% by the end of this calendar year?

Again, I will ask Bob to answer that.

Yes. Thank you, Vickki. Look, we have had strong inquiry for our Parramatta office development. But clearly, decision-making has slowed a little bit in terms of businesses determining how much space they need, understanding what the current environment and current challenges will bring. So it remains at 64%. The good thing is the construction activity has continued on schedule, and we are expecting practical completion by the end of this year. We remain confident in the Paramatta market. We still think it's a great opportunity for GPT, and we are very optimistic about the outlook for that market and also the development. In terms of the office portfolio -- I assume the 98% was referring to our office portfolio occupancy. We do have some expiry occurring during the course of this year. We do have -- but we do have a long WALE across the portfolio. It's about a 5-year WALE or just over 5 years. We are expecting, by the end of the year, we will continue to have a healthy level of occupancy across our portfolio. Okay. It's a bit premature to give you any guidance on what that will be just yet.

Chairman, there are no further questions at this time.

As there are no further questions, I declare the polls for the resolutions put to today's meeting closed. The votes will be compiled by Link Market Services representatives with the results announced to the Australian Securities Exchange and posted to our website later today. On behalf of the Board, management and employees of the GPT Group, thank you for your attendance today. We hope that you found the technology helpful in enabling your attendance and participation. I now declare the meeting closed. Thank you.