GPT Group (ASX:GPT) is a AUDA$9.37B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether GPT Group is lagging or leading in the industry. See our latest analysis for GPT Group
What’s the catalyst for GPT Group’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. In the past year, the industry delivered negative growth of -4.47%, underperforming the Australian market growth of 6.88%. GPT Group leads the pack with its impressive earnings growth of 28.67% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -56.65% compared to the wider REIT sector growth hovering next year.
Is GPT Group and the sector relatively cheap?
REIT companies are typically trading at a PE of 8x, below the broader Australian stock market PE of 18x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Furthermore, the industry returned a higher 15.57% compared to the market’s 11.86%, making it a potentially attractive sector. On the stock-level, GPT Group is trading at a PE ratio of 7x, which is relatively in-line with the average REIT stock. In terms of returns, GPT Group generated 15.74% in the past year, in-line with its industry average.
What this means for you:
Are you a shareholder? GPT Group is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of GPT Group, there are other REIT companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how GPT Group fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If GPT Group has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its REIT peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.