Normal
Hi mateApologies I did not mean to intimate that your conclusion regarding GPT was at all flawed. I am of a similar view that the A$ is hurting offshore investors as you have very rightly pointed out. Part of my work role is to speak regularly to the large institutional investors in the A-REIT space and I just wanted to point out a couple of things in which they differ to the analysis which you presented above (which is also perfectly valid):1. The P/E ratio. I just wanted to point out that a 10x P/E for GPT might seem cheap as you indicated in your post, but what is this relative to? My assumption was that you are making it relative to the rest of the market. I just wanted to point out that revaluation gains can significantly boost earnings for REITs and institutional investors tend to look through this. Hence the true P/E that the sophisticated investors refer to is the price on GPT's operating earnings.You mentioned in your post that GPT states a Realised Operating Income number - this is the operating earnings I am talking about. On last year's number, the P/E is ~15x which is where instos tend to see GPT being priced relative to other stocks in the market.The CGT components you see on your distribution statement are part of the realised gains which GPT has made during the period. The revaluation gain number in GPT's P&L will include these gains as well as unrealised gains as part of their general revaluation process. Generally if there is a one off profit on sale that is distributed, investors will not value these highly as they are not recurring in nature. In GPT's case, they decided to distribute the profits on the sale of an asset but keep other "ordinary course" profits so their overall payout ratio didn't increase to a level which wouldn't be sustained. Therefore, people are comfortable that their level of dividend is recurring and won't drop just because of a one off asset sale (ie it can be replaced with "ordinary course" income next year). Long story short, GPT would have paid the same dividend regardless of the profit on sale of the asset, which is why the market is happy to value it.2. The earnings growth outlook. When it comes to REITs larger investors aren't generally concerned about earnings just one year out. Given the leases on the properties are long, there is a high degree of transparency around the future earnings prospects. The risk to GPT's growth profile which people are concerned about at present is whether they can keep the 5-6% EPS growth that they will hit this year up, going forward into future years. I suspect the low volumes we are seeing at the moment are typical of the absence of instos being willing to step up and by a stock trading at 15x earnings which may only grow 2-3% per annum over the longer term.Sorry if my post was taken the wrong way. I was just trying to give some of my thoughts on the point you made regarding GPT's seemingly low P/E (and the fact that I don't think that is how the larger players in the market view the P/E) and also provide some insight in relation to your point at the end of the post regarding the fact that offshore investors would find GPT compelling soon (by outlining the concerns around earnings growth).One final comment on GPT's stated operating earnings (ROI). This measure actually excludes a large coupon payment they make each year to GIC (Singapore Pension Fund) due to a hybrid they issued to GIC during the GFC. That coupon payment is quite large from memory and so a lot of investors take this into account as well due to it being a recurring payment. It is a bit cheeky on the part of GPT because it is like excluding part of your interest expense when determining your earnings number! GPT's payout ratio is 80% of ROI, but significantly higher based on actual operating earnings once the GIC hybrid coupon is taken into account.Hope this clarifies my post a bit and sorry if it was not clear to begin with. I am not a big fan of GPT management myself, but that does not necessarily determine the price action. As always, the data is dissected many different ways and differing views is what makes a market!
Hi mate
Apologies I did not mean to intimate that your conclusion regarding GPT was at all flawed. I am of a similar view that the A$ is hurting offshore investors as you have very rightly pointed out. Part of my work role is to speak regularly to the large institutional investors in the A-REIT space and I just wanted to point out a couple of things in which they differ to the analysis which you presented above (which is also perfectly valid):
1. The P/E ratio. I just wanted to point out that a 10x P/E for GPT might seem cheap as you indicated in your post, but what is this relative to? My assumption was that you are making it relative to the rest of the market. I just wanted to point out that revaluation gains can significantly boost earnings for REITs and institutional investors tend to look through this. Hence the true P/E that the sophisticated investors refer to is the price on GPT's operating earnings.You mentioned in your post that GPT states a Realised Operating Income number - this is the operating earnings I am talking about. On last year's number, the P/E is ~15x which is where instos tend to see GPT being priced relative to other stocks in the market.
The CGT components you see on your distribution statement are part of the realised gains which GPT has made during the period. The revaluation gain number in GPT's P&L will include these gains as well as unrealised gains as part of their general revaluation process. Generally if there is a one off profit on sale that is distributed, investors will not value these highly as they are not recurring in nature. In GPT's case, they decided to distribute the profits on the sale of an asset but keep other "ordinary course" profits so their overall payout ratio didn't increase to a level which wouldn't be sustained. Therefore, people are comfortable that their level of dividend is recurring and won't drop just because of a one off asset sale (ie it can be replaced with "ordinary course" income next year). Long story short, GPT would have paid the same dividend regardless of the profit on sale of the asset, which is why the market is happy to value it.
2. The earnings growth outlook. When it comes to REITs larger investors aren't generally concerned about earnings just one year out. Given the leases on the properties are long, there is a high degree of transparency around the future earnings prospects. The risk to GPT's growth profile which people are concerned about at present is whether they can keep the 5-6% EPS growth that they will hit this year up, going forward into future years. I suspect the low volumes we are seeing at the moment are typical of the absence of instos being willing to step up and by a stock trading at 15x earnings which may only grow 2-3% per annum over the longer term.
Sorry if my post was taken the wrong way. I was just trying to give some of my thoughts on the point you made regarding GPT's seemingly low P/E (and the fact that I don't think that is how the larger players in the market view the P/E) and also provide some insight in relation to your point at the end of the post regarding the fact that offshore investors would find GPT compelling soon (by outlining the concerns around earnings growth).
One final comment on GPT's stated operating earnings (ROI). This measure actually excludes a large coupon payment they make each year to GIC (Singapore Pension Fund) due to a hybrid they issued to GIC during the GFC. That coupon payment is quite large from memory and so a lot of investors take this into account as well due to it being a recurring payment. It is a bit cheeky on the part of GPT because it is like excluding part of your interest expense when determining your earnings number! GPT's payout ratio is 80% of ROI, but significantly higher based on actual operating earnings once the GIC hybrid coupon is taken into account.
Hope this clarifies my post a bit and sorry if it was not clear to begin with. I am not a big fan of GPT management myself, but that does not necessarily determine the price action. As always, the data is dissected many different ways and differing views is what makes a market!
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