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GDI Property share price falls 2.5% on weak underlying earnings

The GDI Property Group Ltd (ASX: GDI) share price fell 2.44% in today’s trade after reporting its half-yearly results this morning.

The real estate investment trust (REIT) reported net tangible assets (NTA) of $1.21 per security, up marginally from $1.18 per security in 1H18. Free funds from operations (FFO) of 4.36 cents per security (cps) which represents a payout ratio of 89% of FFO and 102% of adjusted FFO (AFFO).

GDI announced a distribution of 3.875 cents per stapled security in line with guidance and affirmed full-year guidance of 7.75 cents per stapled security.

The trust returned an absolute total return of 5.83% for the period, which takes its absolute return since listing to 14.83% per annum. The office REIT reported a weighted-average lease expiry of 2.4 years with an occupancy rate of 86.9% in an indication that a downturn may be starting to filter through to the bottom line.

The REIT also has exposure to Townsville through its portfolio which could see 2H19 numbers pushed lower, while the company expects its Perth CBD vacancy rates to decline steadily through to 2028 (currently ~20%).

Foolish Takeaway

The GDI share price is up 5.26% this year, underperforming the S&P/ASX200 Index (ASX: XJO) which has returned 9.57% year-to-date. While the REIT is one of many REITs, alongside the likes of Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR) to ride the property boom, I think tough times could be ahead.

Overall I think the results have been boosted by some significant asset sales throughout the period, meaning the underlying results aren’t as rosy as they may seem on the surface.

I have my reservations about the Australian REITs given headwinds for retail and residential real estate in Australia over the next 6-12 months. I’d be looking away from the likes of GDI and putting my money into a countercyclical stock such as AGL Energy Ltd (ASX: AGL) to ride out the rough waters ahead.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.