Goodman Group leads REIT results with 11% profit increase

Goodman Group (ASX: GMG) reported a strong increase in operating earnings despite a property market downturn.

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The Goodman Group (ASX: GMG) share price is up 4.48% this morning after the real estate investment trust (REIT) reported an 11.4% increase in operating profit.

What were the REIT's full-year highlights?

Goodman Group's operating profit climbed 11.4% higher on the prior corresponding period (pcp) to $942 million while operating earnings per share (EPS) surged 10.5% to 51.6 cents per share (cps).

Goodman's gearing increased by 460 basis points (bps) to 9.7% for FY19, while management increased the distribution per security by 7% on pcp to 30.0 cps.

Goodman's earnings remain well-diversified across the globe, with 37% in Australia and New Zealand, with Asia (29%), UK and Continental Europe (26%) and Americas (8%) also significant contributors.

What about operational highlights?

Goodman's Property Investment segment saw strong returns across the year including like-for-like net property income growth of 3.3% in FY19.

However, the Aussie REIT did cite increasing demand from e-commerce, data centre users and urban renewals as potential headwinds for land usage in some of its core investment markets.

Also taking the edge off the result was the minor fall in Property Investment earnings, falling from $384.8 million to $372.1 million in FY19.

In its Development segment, Goodman reported strong WIP at $4.1 billion with higher development activity and strong risk-adjusted returns recorded during FY19, despite the minor earnings drop.

Management earnings soared 48% on pcp to $469.7 million despite one less partnership, as external assets under management (AUM) climbed to $42.9 billion.

Positively for shareholders, Goodman reported 98% occupancy and a weighted average lease expiry (WALE) of 4.7 years for FY19.

Over the last 12 months, Goodman reported valuation growth of $3.8 billion with $13.6 billion available in undrawn debt, equity and cash due to new commitments and asset sale proceeds in FY19.

In terms of its balance sheet, Goodman reported a strong cash and liquidity situation with substantial headroom on its financial facility covenants.

Foolish takeaway

While net profit plummeted in FY19, Goodman has retained a strong financial position and the potential to expand its portfolio further in FY20.

An increase in operating earnings is a positive for investors, however, a significant portion of the REIT's statutory earnings still comprise property valuation upgrades.

Motley Fool contributor Kenneth 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.

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