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GPT share price could be set to surge on strong half-year earnings

The GPT Group (ASX: GPT) share price could surge today after the company posted strong half-year results in line with updated guidance.

GPT Group’s 1H19 highlights

GPT’s statutory net profit after tax (NPAT) rose 14.5% to $1,451.7 million in 1H19, while funds from operations (the preferred profitability metric for REITs) rose 3.7% to $574.6 million. The company’s payout ratio remains high at 99.8% and includes a 3.5% increase in its interim distribution to $0.2546 per stapled security.

The stock currently yields an unfranked 4.17%, which is at the lower end for those seeking yield. A-REITs will typically be unfranked as they pay “distributions” (i.e. payout all earnings from the trust) rather than dividends like a company. There are certainly more attractive options out there, but I would expect to see further capital growth this morning, even though the GPT share price has already risen 14.88% year-to-date.

The REIT’s biggest revenue drivers were in its Logistics (+16.9%) and Funds Management sectors (+15.1%), whilst the larger Office (+8.0%) and Retail (+2.4%) also posted strong gains. A 21.5% increase in net interest expense was due to higher debt levels, with the group’s cost of debt declining marginally to 4.2% for the half, down from 4.3% in 1H18.

Portfolio occupancy of 97.8% shows that GPT has been able to shrug off an apparent slowdown in Australian retail to keep its key portfolios intact. Similarly, revaluation gains of $911 million in the group’s portfolio have contributed to the 10.7% increase in net tangible assets (NTA) per security to $5.58 in the half.

Foolish Takeaway

This is a strong result from GPT and continues to the good run of results for the A-REIT sector following Mirvac Group’s (ASX: MGR) and Shopping Centres Australiasia (ASX: SCP) strong showing last week. I personally am not too bullish on the A-REITs given headwinds in residential real estate and the retail sector, but I’ve been proven wrong so far with both Mirvac and GPT.

With several other big players set to report during the February mid-year reporting season, as well as the likes of key retail barometers including Wesfarmers Ltd (ASX: WES) and Woolworths Group Ltd (ASX: WOW), it’s looking like it could be a bumper share price season for the A-REITs.

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Motley Fool contributor Lachlan Hall does not own shares in any of the companies mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Shopping Centres Australasia Property Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.