Citi upgrades GPT to Buy and rates the REIT a ‘value-pick’

Despite net profit after tax falling 30% to $529.7m for the six-months ending 30 June 2022, Citi upgraded GPT Group (ASX: GPT) shares to Buy from Neutral.

The broker believes Australia’s oldest REIT is now trading at a reasonably safety margin, a -35% discount to net tangible assets (NTA), making it not only cheap relative to GPT’s history, but across the REIT sector.

Citi’s $4.90 target price on the REIT, implies a 20% return from its current valuation, with the forecast dividend yield of 6.2% likely to attract to value-orientated investors.

While the valuation appears to enjoy no benefit from the REIT’s $17bn funds management business and development pipeline, Citi still believes GPT is now one of the broker’s ‘value picks’ in the sector along with Mirvac (ASX: MGR) and Abacus Property Fund (ASX: ABP).

Discount to NTA

The broker believes the size of the discount to net tangible assets makes up for investor concerns over the sub-sector’s exposure to issues like rent stability, lease incentives, and valuations.

While GPT’s lower hedging and office portfolio exposure have been a concern for investors in the last 12 months, the broker also reminds investors it has improved to 65% from around 50% in June 2021.

Citi estimates GPT is trading at around 12.5 times 2022-23 earnings.

What's in store?

The broker expects GPT to earn 32.2 cents a share in financial year 2023 and is forecasting a full year dividend of 25.2 cents a share.

The REIT is guiding to FY22 FFO of 32.4cps compared to a previous range of 31.7-32.4cps.

Management has ruled out a buyback in favour of $200-250m/year logistics pipeline.

What other brokers think?

GPT’s share price is down round -16% over 12 months.

Consensus on the stock in Hold.

Based on Morningstar’s fair value of $5.18 the stock appears to be undervalued.

Based on the six brokers that cover GPT (as reported on by FN Arena) the stock is trading with 14.2% upside to the target price of $4.72.

Macquarie likes the boost to funds under management (FUM) from managing the AMP Capital Retail Trust (ACRT), after a transfer of management from AMP Ltd (ASX: AMP) and Dexus (ASX: DXS). 

As a result, the broker increases earnings forecasts and lifts the price target to $4.70 from $4.68. (Outperform).

Morgan Stanley increases its target to $4.50 from $4.30 after the first half result, a strong beat versus the broker’s forecast - due to stronger-than-expected rental income - and the Underweight rating is unchanged. 

GPT share price over one year.