The property market may be regaining favour but this positive sentiment isn’t applying to the GPT Group (ASX: GPT) share price this morning as it fell after the property group posted a halving in interim net profit and an increase in its dividend.
The GPT share price lost 2.2% to $6.12 while the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index dipped less than 0.1% at the time of writing.
GPT isn’t the only one in the property sector to lose ground but it’s one of the biggest laggards today as the Stockland Corporation Ltd (ASX: SGP) share price slipping 0.7% to $4.57 and Mirvac Group (ASX: MGR) share price giving up 1.4% to $3.25.
Big profit plunge not the issue
GPT posted a 51.5% plunge in first half net profit to $352.6 million even as funds from operations (FFO) inched up 2.2% to $295.9 million.
Management also declared a 4% increase in distribution to 13.11 cents per security and is forecasting similar growth in its final dividend on the back of a 2.5% increase in FFO per security for 2019.
The big profit drop was due to a significantly smaller increase in property valuations and large marked-to-market losses on Treasury instruments.
Investors will be eyeing FFO more closely as that better reflects operating performance. On that front, strength in the office property market that also lifted the fortunes of fellow property developer Mirvac Group is the highlight for GPT.
The good, bad and not so pretty
The group’s office portfolio recorded a 6.5% jump in like-for-like (LFL) income over the same time last year as office occupancy came in at 97.1%.
It’s logistics portfolio of industrial properties recorded a 2.2% increase in LFL income for the period as valuation on the portfolio increased 2.7% to $51.4 million.
Both office and industrial properties have performed well over the past year due to strong demand and limited supply of office space in Melbourne and Sydney, while the on-line retail revolution is driving the growth in warehousing.
The Achilles heel is retail as the drop in foot traffic at many shopping malls is dragging on the outlook for this segment. At least GPT’s retail division still managed to deliver a LFL sales growth of 1.4%.
The problem is the lack of positive catalysts for GPT that I believe is contributing to today’s sell-off. The big valuation uplift cycle is probably over and after the stock’s 16% gain, which is more than 10 percentage points ahead of the ASX 200, its valuation and yield is looking a little stretched.
GPT is sitting on a 2019 yield of around 4.5% and it doesn’t pay franking. That in itself may not seem so bad, especially with management forecasting 4% distribution growth for the year and with interest rates heading towards zero, but there are better dividend options on the market.
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