Growthpoint has provided a quarterly update with valuations gains and an earnings upgrade driven by strong leasing results and new acquisitions.
Timothy Collyer, Managing Director of Growthpoint, said, “Growthpoint has had an active period across the business, during the first half of FY22. We are pleased to have exchanged contracts to acquire an A-grade office asset in the ACT, with high occupancy and a long WALE, increasing our investment in this market to $261 million. The property is located in the suburb of Phillip, regarded as ‘Australia’s Public Health Hub’, which will benefit from ongoing government investment in infrastructure and transportation links.
“We have also taken advantage of record-low pricing to extend $715 million of existing debt facilities, reducing our re- financing risk and lowering our average cost of debt by 23 basis points and extending our weighted average debt maturity by 2.6 years. We have also entered into two new facilities of $75 million each to fund future property acquisitions. The attractive terms we have secured highlight the strength of our relationships with our banking partners and their continued support of our growth ambitions.
“Both initiatives are expected to be accretive to FFO in FY22. We’re pleased to upgrade our FFO and distribution guidance today to at least 27.0 cps and 20.8 cps, respectively, supported by strong leasing success across the portfolio, our additional investment in Dexus Industria REIT, the acquisition of 11 Murray Rose Avenue, Sydney Olympic Park, NSW, and the active management of our debt book.”
Growthpoint engaged independent external valuers to revalue 37 of its 56 properties, or 74% of the Group’s portfolio by value, at 31 December 2021. The preliminary draft external valuations indicate a $256 million, or 7.5%, increase on a like-for-like basis in asset values to the 30 June 2021 book values. This uplift is expected to add approximately $0.33 per security to the Group’s NTA, which was $4.17 per security at 30 June 2021.
Commenting on the results of the Group’s preliminary draft valuations, Mr Collyer also said, “After the largest 12- month like-for-like valuation increase in the Group’s history over FY21, we are pleased to see that our preliminary draft external valuations indicate another substantial uplift in the first half of FY22. This uplift has been driven by leasing success across both our office and industrial portfolios, alongside favourable market conditions. There continues to be further yield compression across the industrial sector, with recent sales setting new benchmarks. Investor confidence in the office market is improving, as leasing markets appear to have stabilised, driving an increase in sales activity and yield compression for A-grade, well-leased assets.”
Industrial Revaluations
The Group had 22 of its 31 industrial assets revalued by independent valuers, representing 87% of its industrial portfolio by value. The preliminary draft external valuations indicate the value of the Group’s industrial portfolio has increased by $125 million, 9.6% higher on a like-for-like basis than the prior book values. On a like-for-like basis, the average market capitalisation rates of industrial properties valued has reduced approximately 30 basis points, from 5.0% to 4.7%.
Office Revaluations
Growthpoint also had 15 of its 25 office assets revalued by independent valuers, representing 68% of its office portfolio by value. The preliminary draft external valuations indicate the value of the Group’s office portfolio has increased by $131 million, 6.2% higher on a like-for-like basis than the prior book values. On a like-for-like basis, the average market capitalisation rates of office buildings valued has reduced approximately 20 basis points, from 5.1% to 4.9%.
Independent valuations are subject to finalisation and audit and could be revised up or down. They also assume that there is no material change in market conditions before 31 December 2021, the effective date of the valuations. The final audited valuations for individual properties will be available as part of Growthpoint’s 1H22 results, which will be released to the market on Thursday, 17 February 2022.
Acquisitions
Growthpoint exchanged contracts to purchase an A-Grade, modern, government-leased office asset, located at 2- 6 Bowes Street, Phillip, ACT, for $84.6 million. The acquisition will be funded using debt. Constructed in 1986 and comprehensively refurbished in 2017/2018, the asset offers 12,376 square metres of office accommodation and 86 undercover parking spaces. The asset has achieved a 5.5 Star NABERS Energy rating and 5.0 Star NABERS Water rating.
The asset is 96% leased, with a 9.2 year WALE, at 31 December 2021. The AAA rated, ACT Government (Department of Health) is the major tenant, occupying 89% of the building, and the Australian Federal Government occupies 7%. The property is being acquired on a 5.0% initial income yield.
The contract of sale is subject to the approval of the Foreign Investment Review Board (FIRB). The Group has submitted its application and does not anticipate any issues with obtaining approval. Growthpoint expects settlement to occur five business days after receipt of FIRB approval.
Capital management
Growthpoint has refinanced $715 million of debt with major Australian banks, and combined with the new debt facilities outlined below, has extended the Group’s weighted average debt maturity to 4.7 years as at 30 November 2021 (30 June 2021: 4.1 years). The pricing achieved for the extended and new debt was the lowest in Growthpoint’s history, helping to reduce the Group’s average cost of drawn debt from 3.3% at 30 June 2021 to 2.9% as at 30 November 2021. The Group has only one facility of $90 million maturing in December 2022, with no other debt maturing until December 2024.
The Group has also entered into two new debt facilities totalling $150 million. After settlement of 2-6 Bowes Street, Phillip, ACT, Growthpoint expects to have approximately $305 million of undrawn debt facilities. The Group expects the recent increase in transaction activity across the property market to continue and is actively looking to deploy these funds in the near term.
Given the indicative strong external property valuations, the Group expects to remain well below its target gearing range, 35%-45%, at 31 December 2021.
Guidance
In August 2021, Growthpoint provided FY22 FFO guidance of at least 26.3 cps. Since then, the Group has invested further capital into Dexus Industria REIT (ASX: DXI), purchased 11 Murray Rose Avenue, Sydney Olympic Park, NSW, enjoyed strong leasing success across the portfolio and actively managed its debt book. As a result, the Group has upgraded its FY22 FFO guidance to at least 27.0 cps, which represents a minimum of 5.1% growth over FY21.
Any further acquisitions that we may make, including 2-6 Bowes Street, Phillip, ACT, would be accretive to FFO. This guidance also anticipates no significant market movements or unforeseen circumstances occurring during the remainder of the financial year.
The Group has also upgraded its FY22 distribution guidance from 20.6 cps to 20.8 cps, up 4.0% on FY21.
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