Following the sale of the Cavill Ave asset earlier this month, GDI are more than ever focused on the Perth office market including embarking on the speculative development of WS2.
In announcing the results of the group this week, GDI commented that the Perth market conditions were in a recovery phase with the prospects for Perth and other export facing markets to be the beneficiaries of the global response of governments investing into new infrastructure projects to stimulate their economies and generate wage growth.
As at 30 June 2021, GDI’s Portfolio comprised four wholly owned properties in CBD locations with a combined independent value of $787.0 million:
- Mill Green Complex, which comprises three Buildings: 197 St Georges Terrace, 5 Mill Street and 1 Mill Street, Perth;
- Westralia Square, 141 St George Terrace, Perth;
- 50 Cavill Avenue, Surfers Paradise; (subsequently sold)
- 180 Hay Street, Perth.
GDI also holds positions in a number of syndicates including
- 43.68% of GDI No. 42 Office Trust, which owns Stanley Place, 235 Stanley Street, Townsville, and
- 47.19% of GDI No. 46 Property Trust which owns a portfolio of 17 metropolitan Perth properties occupied by high profile car dealerships and service centres (IDOM Portfolio).
GDI also manages seven unlisted and unregistered managed investment schemes with approximately $520.2 million of Funds Under Management.
GDI’s FY21 earnings were down -30% on the previous year due to the releasing programme at Westralia Square. Westralia Square was purchased in October 2017 for $216.3 million on a passing yield of approximately 11.3% and a rate per square metre of approximately $6,800, well below replacement cost. Approximately two thirds of Westralia Square has since been committed with new long‐term leases or agreements to lease.
As mentioned above, GDI are progressing the development opportunity on excess land at Westralia Square without a pre-commitment following receipt of a development approval for a new approximately 9,300sqm office building earlier this year. GDI have appointed Built Pty Limited, as the Builder with construction commencing in August 2021 and anticipated to complete in the second half of 2022. To be constructed from a combination of steel and timber on the existing carpark, on completion WS2 will be Perth’s most environmentally friendly building. The total estimated costs to complete of approximately $63.0 million (excluding finance and incentives) includes $10.0 million of precinct works that are expected to not only result in WS2 being classified as a premium grade building, but also re‐position the existing Westralia Square to its former premium grade status.
Post balance date, on 2 August 2021, GDI exchanged contracts to sell 50 Cavill Avenue, Surfers Paradise, for $113.5, netting the Group approximately $109.0 million. GDI purchased 50 Cavill Avenue in February 2016 for a net price of $49.2 million. At the time of acquisition occupancy at the property was 54% of net lettable area. After spending approximately $18.4 million, inclusive of incentives, on the refurbishment and releasing programme, occupancy was lifted to 96.9% and delivered a 62% gain on all costs.
Whilst GDI’s FFO per security was only 5.52cps, GDI maintained its cash distribution for the year of 7.75 cents per security, by dipping into its cash reserves, which contributed to a 2c drop in NTA.
GDI Property Group are not on our Top Picks List.
The REIT commenced the year with a security price of $1.115 against a NAV of $1.26 (-12% discount to NAV) and closed the year at $1.12 against a NAV of $1.25 (-10% discount to NAV). The REIT provided a 7.75c distribution for FY21, equating to a 6.9% yield, which together with a 0.4% lift in unit price would provide investors with a total return of 7.4%.
Key financial and operational highlights for the period are:
Financial highlights:
- Operating earnings of $29 million, or 5.37cpu, down -34.8% on the prior corresponding period (pcp)
- Statutory profit of $22.9 million
- Distributions of 7.75cpu, in line with pcp
- NTA of $1.25, down -0.8% from $1.26 at 30 June 2020
Operating highlights:
- Development approval for the new approximately 9,300sqm office development on the excess land at Westralia Square (WS2)
- Development approval for the new approximately 45,000sqm office development at 1 Mill Street, Perth
- Settlement of the acquisition of 180 Hay Street, Perth, with an immediate $2.2 million uplift in value
- Post balance date, sale of 50 Cavill Avenue, Surfers Paradise, for $113.5 million, approximately $8.0 million more than book value (after settlement adjustments and selling costs), with settlement expected on or around 31 August 2021
- Notwithstanding falls in revenue and FFO compared to FY20, both were in materially in excess of internal budgets due to significant leasing successes across the portfolio, most notably at Mill Green, Perth and 50 Cavill Avenue, Surfers Paradise
Portfolio update
Leasing
GDIs’ largest asset by capital value is Westralia Square. GDI secured the Minister for Works to two new leases commencing 1 February 2021, a five‐year lease to the Western Australia Police Force (WAPOL) (12,689sqm) and a six‐year lease to Births, Deaths and Marriages (1,833sqm). Post balance date GDI also agreed terms with the Minister for Works for WAPOL to also occupy level 7, and to increase the entire tenure of WAPOL’s lease by 2.5 years. During the year GDI also leased levels 11 (1,807sqm, 10‐year lease) and 12 (1,807sqm, 6.5‐year lease), leaving only levels 13‐18 vacant. With current interest in this space, GDI are confident that all of WS1 will be committed during FY22.
GDI also had leasing successes at 5 Mill Street, Perth, with occupancy increasing from a low during the year of approximately 60% of NLA to 86%, 197 St Georges Terrace, with occupancy increasing to 89% (from 85%) and 50 Cavill Avenue, with occupancy of approximately 97%.
During the period GDI settled the acquisition of 180 Hay Street, Perth. 180 Hay Street was constructed in 1999 and comprises 4,925sqm of well‐presented office space over four floors of over 1,000sqm each and a mezzanine level. The property was purchased with vacant possession and early access was granted in June 2020 to immediately commence a refurbishment programme including upgrading all the floors, a new end of trip facility and a chiller upgrade. Although GDI have not concluded any leasing transactions yet, they are pleased with the level of inspections and remain confident that we will have some leasing successes in FY22.
Gearing
GDI has drawn debt on its Principal Facility of $168.8 million and undrawn debt of $36.2 million. GDI remains well within its Principal Facility covenants, with a Covenant Loan to Value ratio of 21.5% (Covenant of 50%) and a Covenant Interest Cover ratio of 5.3X (Covenant of 2X). Post balance date, we executed an Amendment and Restatement Agreement amending the Principal Facility, with the primary amendments being:
- an extension of the maturity date to August 2024;
- on settlement of 50 Cavill Avenue, the reduction in Tranche’s B and C by $45.6 million to $159.4 million, from the previous $205.0 million; and
- the establishment of Tranche E, an undrawn $85.0 million tranche providing GDI with capacity to finance the construction of WS2.
On settlement of 50 Cavill Avenue, we will have undrawn debt of approximately $84.6 million, in addition to the undrawn $85.0 million Tranche E, providing GDI with the financial flexibility to continue both its asset and capital management initiatives.
FY22 Guidance
GDI confirm that it is their intent to pay a cash distribution of 7.75 cents per security for FY22, subject to no material change in circumstances or unforeseen events. As with FY21, GDI would expect that a proportion of any cash distribution for FY22 will be paid out of capital.
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