Growthpoint Progress is on Point

Growthpoint released their annual results today reporting strong leasing at Botanicca, stable net income and higher valuations.

Timothy Collyer, Managing Director of Growthpoint, said, “Growthpoint has had a successful year, delivering a strong set of financial results, and making good progress towards our strategic objectives. While we, alongside individuals and businesses around the world, continued to face challenges presented by the COVID-19 pandemic, we entered the crisis on a strong footing and put in place the right steps at the outset of the pandemic to protect our business and ensure we were able to face these challenges head- on. As a result, the COVID-19 pandemic had no direct material impact on our FY21 financial results.

“During FY21, we increased the portfolio’s occupancy to 97% and maintained its long WALE of 6.2 years due to substantial leasing success. In October we signed a 10-year and seven-month lease with Bunnings for 71% of our new A-grade office, Botanicca 3. The lease was executed in the middle of Melbourne’s extended COVID-19 lockdown and was one of the largest office leasing transactions executed nationally in FY21. To date, we have signed a further four leases, taking the building’s occupancy to 82% and we continue to expect to lease the remaining space by the end of the calendar year.

“We also signed a number of leases with other significant tenants in FY21. Pleasingly, we saw no significant changes to tenants’ space requirements and our tenants continued to seek long lease terms, with the average lease term being more than eight years.

The Group reported like for like net income in line with the prior corresponding period and overall Funds from Operations up just 0.6% due to there being no contribution from the Broadmeadows asset during following the sale.

The substaintial re-rating of the industrial sector has driven the Groups valuation gains by $202m whilst the Office portfolio found a $215m gain, predominantly as a result of leasing success.

Mr Collier said, “The value of Growthpoint’s property portfolio increased by 10.2% over FY21, the largest 12-month like-for-like increase in the Group’s history. The significant uplift reflects the substantial re-rating that has occurred across the industrial sector, as well as leasing success across both our office and industrial portfolios. The impressive valuation results follow a sustained period of valuation gains, reflecting the highly desirable nature of the Group’s portfolio.

“At Growthpoint, we remain focused on operating in a sustainable way and reducing our environmental footprint. During FY21, we significantly accelerated our net zero target to 2025, 25 years earlier than our previous target. We also progressed our sustainability report to further align with the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD) and are pleased to have released our inaugural TCFD Statement, alongside our Sustainability report, today.”

The Group announced FY22 FFO guidance of at least 26.3 cps, which represents a minimum of 2.3% growth over FY21. Based on this growth, a FY22 distribution of 20.6 cps is in line with the Group’s new policy to distribute between 75% and 85% of FFO. The Board believes that maintaining a more conservative payout ratio will assist it to achieve its objective of providing Securityholders with growing distributions from FY21.

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Growthpoint commenced the financial year trading at $3.20 against a NAV of $4.25 (-12 discount to NAV) and finished the year at $4.07 against an improved NAV of $4.17 (-2% discount to NAV). Growthpoint delivered distributions of 20.0cps for the period, equating to a 6.25% yield on the opening price on 1st July 2020. Together with the increase in unit price over the year, the Total Securityholder Return equates to 33%.

Financial highlights

• Funds from operations (FFO) per security of 25.7 cents per security (cps), 0.4% up on prior corresponding period (pcp)
• Net tangible assets (NTA) per security of $4.17, up 14.2% on 30 June 2020, driven primarily by significant property valuation gains
• Gearing reduced by 430 basis points to 27.9%, well below the Group’s target range, 35% – 45%
• Statutory profit after tax of $553.2 million (FY20: $272.1 million)
• FY21 distribution of 20.0 cps, 8.3% lower than pcp, reflecting the Group’s decision to maintain a more conservative payout ratio, between 75% and 85% of FFO, going forward

Operating Highlights

• Net property income (NPI) down 2.7% to $235.6 million primarily due to no contribution from Broadmeadows asset, which was divested in the first half of FY21. Like-for-like NPI in line with pcp
• Largest like-for-like 12-month valuation uplift (10.2%) since Group’s inception driven by yield compression and leasing success; portfolio now valued at $4.5 billion
• Weighted average capitalisation rate of 5.2%, down 48 basis points on 30 June 2020
• Weighted average lease expiry (WALE) of 6.2 years (30 June 2020: 6.2 years)
• Portfolio occupancy increased to 97% (30 June 2020: 93%)
• Signed significant lease agreements with key tenants Bunnings, Monash University, Australia Post, the South Australian Government, Autosports Group and Laminex Group. Average lease term of all leases signed was 8.2 years
• Successfully divested three assets that no longer fit within our strategy
• Acquired a 100% leasehold interest in a fully leased, A-grade office asset, located in Sydney Olympic Park
• Accelerated net zero target to 2025 (previously 2050)
• Maintained high employee engagement and alignment scores in top quartile of benchmark group

Acquisitions

During the year, Growthpoint acquired a 100% leasehold interest in 11 Murray Rose Ave Sydney Olympic Park from Charter Hall for $52m. The freehold interest remains with the Sydney Olympic Park Authority. The asset is fully leased to high-quality tenants with a 4.9 year weighted average lease expiry (WALE) as at 31 May. Major tenants include B2G Consortium, a consortium of four major infrastructure companies who have a longterm contract with Sydney Water, Jardine Lloyd Thompson, who were recently acquired by global insurance company, Marsh and McLennan, and Energizer Australia, a wholly-owned subsidiary of US-listed batteries manufacturer, Energizer Holdings. The property is being acquired on a 5.5% initial income yield.

Divestments

Growthpoint also sold 2 assets during the period including another Sydney Olympic Park asset at 6 Parkview Ave for $66.1m and a non income producing industrial facility at 120 Northcorp Boulevard Broadmeadows, VIC for $50.2m.

Valuation

Growthpoint engaged external valuers to value 45 of its 55 properties, or 78% of the Group’s portfolio by value, as at 30 June 2021. The remaining valuations were undertaken as internal or Director’s valuations. The value of the portfolio as at 30 June 2021 was $4.5 billion, 10.2% higher on a like-for-like basis than as at 30 June 2020.

Due to the significant re-rating that has occurred across the industrial sector, Growthpoint engaged external valuers to revalue its entire industrial portfolio. The value of the industrial portfolio increased to $1.5 billion as at 30 June 2021, 15.6% higher on a like-for-like basis than as at 30 June 2020. Eighty-three per cent of the Group’s industrial assets increased in value.

The value of the Group’s office portfolio increased to $3.0 billion as at 30 June 2021, 7.6% higher on a like-for-like basis than as at 30 June 2020. At three assets, we saw significant gains:

• 1 Charles Street, Parramatta, New South Wales increased in value by $85 million or 19% as investor demand strengthened and return expectations lowered for long-WALE assets. This asset has a 23-year and 6-month remaining lease term with the New South Wales Police Force.
• Botanicca 3, Richmond, Victoria increased in value by $41 million or 29% as a number of lease agreements were signed during the year. As at 30 June 2021, the building was 78% occupied.
• 75 Dorcas Street, South Melbourne, Victoria increased in value by $35 million or 16% as we entered into a new 15-year and 11-month lease with major tenant, Autosports Group (ASX: ASG).

Excluding these three assets, the remainder of the office portfolio increased in value by 2.7%.

Balance Sheet

Growthpoint has a conservative gearing of 27.9% which was lower in FY21 due to the higher valuations and repayments. The group has undrawn debt capacity of $387m with a weighted average term on facilities of 4.3years and a weighted average cost of 3.3%.

Outlook & Guidance

Growthpoint announced FY22 FFO guidance of at least 26.3 cps, which represents a minimum of 2.3% growth over FY21. Earnings growth will be driven by increased income from Botanicca 3, which they continue to expect to be fully leased by the end of the calendar year, as well as higher occupancy across the portfolio. The Group also announced a FY22 distribution guidance of 20.6 cps, which represents 3.0% growth over FY21, and is in line with the Group’s new policy to distribute between 75% and 85% of FFO.

Growthpoint are looking for opportunities to deploy approximately $387 million of undrawn debt and are looking to grow a funds management revenue by establishing funds in areas where their expertise can be deployed to enhance shareholder returns.

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