Growthpoints’ platform provides for steady growth into FY23

16 August 2022

Growthpoint released their results for FY22 with Funds from operations (FFO) per security of 27.7 cents per security (cps), up 7.8% on prior corresponding period with an eye for further growth in FY23.

Tim Collyer, Managing Director of Growthpoint, said, “We have a had a strong performance this year, delivering a robust set of results which reflects the successful execution of the Group’s growth strategy and underlying strength of the business. The Group has made strategic, accretive acquisitions over the year, including three high-quality modern office assets and additional securities in DXI, further increasing our exposure to the growing industrial sector. Further, the Group has also successfully settled on the acquisition of a fourth high quality, predominantly government leased office asset in Dandenong in July, and has announced it has entered an agreement to acquire Fortius Funds Management, a key growth opportunity for the business.

“The Group’s portfolio continues to be leased to predominantly government, listed or large organisations and has maintained its high occupancy of 97% and WALE of 6.3 years as at 30 June 2022. Our portfolio value has increased by 7.9% or $356 million on a like-for-like basis, with the uplift reflecting the strength of the industrial market and the Group’s leasing success across both the office and industrial portfolios in the year.

“Growthpoint successfully leased approximately 234,000 square metres of accommodation, with key leases signed or renewed with Samsung, Fox Sports, Scope and Bunnings in the office portfolio and Woolworths, Linfox and Eagers Automotive in the industrial portfolio. In particular, we were pleased to see Woolworths exercise their five-year lease option for their major Queensland distribution centre at Larapinta, the Group’s largest industrial property by value, in the second half of the year. Post balance date, we have negotiated an additional 2.5 year extension to the Woolworths lease, resulting in a 7.5 year lease term from February 2022. The Group maintained its high tenant retention, 86% at 30 June 2022, and was ranked industry leader on landlord satisfaction in a tenant survey conducted by property research specialist Brickfields consultancy in FY22.

“We remain focussed on operating in a sustainable way, and we have continued to make progress on sustainability, moving forward towards our net zero by 2025 target including improving energy and resource efficiency across our portfolio and completing three solar installations in our office portfolio. Growthpoint’s performance in external benchmarks remains strong and the Group has also increased its NABERS Energy rating to 5.2 Stars.

Today, the Group provides guidance for FY23 FFO of 25.0 – 26.0 cps (27.7 cps FY22) and FY23 distribution of 21.4 cps (20.8 cps FY22). A key assumption to guidance is in respect of rising interest rates, with the Group assuming an average FY23 floating cash rate of 2.8%.

Mr Collyer said, “Going into FY23, Growthpoint is positioned to manage the business through a period of higher inflation and higher interest costs, with 61% of its debt fixed at 30 June 2022 and ample headroom to debt covenants. The Group’s gearing of 31.6% at 30 June 2022 remains below the target range of 35% to 45%, providing flexibility to invest in property or funds where we see value for securityholders. We intend to grow the recently announced funds management business, targeting 10% to 20% of Group EBIT, over the medium term delivering incremental growth to earnings and income stream diversification for securityholders. Growthpoint remain committed to providing securityholders with sustainable income returns and capital appreciation over the long term.”

FY22 financial and capital management overview:

Statutory profit after tax of $459.2 million (FY21: $553.2 million)
Funds from operations (FFO) per security of 27.7 cents per security (cps), up 7.8% on prior corresponding period (pcp)
Net tangible assets (NTA) per security of $4.56, up 9.4% on 30 June 2021, primarily reflecting strong valuation uplift across the portfolio in the first half, with more subdued growth in second half of the year
Gearing of 31.6% at 30 June 2022, +370 bps on FY21, still below target range of 35% to 45% and in line with strategy to deploy debt capital to increase growth for the Group
Refinanced $715 million of debt on improved terms for the Group and entered into new facilities of $350 million. At year end the Group’s average cost of drawn debt was 3.4% (3.3% at 30 June 2021)
Fixed debt of 61% and a weighted average cost of fixed debt of 3.0% at 30 June 2022, with the Group restructuring and entering new swaps in the period
FY22 distribution of 20.8 cps, 4.0% higher than pcp reflecting the strong performance in FY22 and a payout ratio of 75%, in line with the Group’s decision to maintain the payout ratio between 75% and 85% of FFO

FY22 operations review:

Invested over $320 million capital over FY22, acquiring three high-quality office assets and additional Dexus Industria REIT (DXI) securities
Net property income (NPI) up 5.1% to $247.6 million and like-for-like NPI up 2.3% on pcp
Strong property valuation uplift (7.9% on a like-for-like basis over 12 months), with the portfolio valued at $5.1 billion at 30 June 2022 ($4.5 billion at 30 June 2021)
Weighted average capitalisation rate (WACR) of 5.0%, down 20 basis points from 30 June 2021
Increased weighted average lease expiry (WALE) to 6.3 years (30 June 2021: 6.2 years)
Leasing success with ~234,000 square metres of leasing completed in FY22, or 17% of portfolio income, and tenant retention of 86% across the portfolio
Portfolio occupancy of 97% maintained (97% at 30 June 2021), with office portfolio 95% occupied and industrial portfolio 100% occupied at 30 June 2022
Recognised as GRESB Sector Leader in 2021 Sustainability Benchmark, scoring 80/100 (+8.1% from pcp) and CDP score of B maintained. Top five ranking for Energy ratings in NABERS Sustainable Portfolios Index 2022
High employee engagement and alignment maintained, scoring in top decile and top quartile respectively, based on the benchmark group (both top quartile in FY21)

Strategic acquisitions

Growthpoint invested $322 million capital in FY22, acquiring high quality, modern office assets and additional DXI securities.

Three high quality modern, A-grade office assets have been purchased to 30 June 2022, with a blended WALE of 7.2 years and an average income yield of 5.0%. These include 11 Murray Rose Avenue, Sydney Olympic Park, New South Wales for $52.0 million in August 2021, 2-6 Bowes Street, Phillip, Australian Capital Territory for $84.6 million in December 2021 and 141 Camberwell Road, Hawthorn East, Victoria for $125 million in February 2022.

Growthpoint also invested a further $60.3 million in DXI in early FY22, maintaining its holding at circa 15% and increasing its exposure to the industrial property sector.

In July 2022, the Group successfully settled the acquisition of another A-grade office asset at 165-169 Thomas Street, Dandenong, Victoria. The GSO Dandenong asset, predominantly leased to the Victorian State Government with a long WALE of 9.4 years, was acquired by Growthpoint for $165 million on an initial yield of 5.3%.

In early August 2022, Growthpoint announced that it had entered a share sale agreement to acquire 100% of the shares in Fortius Funds Management Pty Ltd (Fortius), a key strategic priority and growth opportunity for the business. Completion of the transaction is anticipated in 1QFY23, subject to satisfaction of conditions precedent.

Property portfolio valuation uplift

The Group engaged external valuers to value 31 of its 58 properties, or 63% of its portfolio by value. The remaining valuations were undertaken as internal or Director’s valuations in line with the Group’s valuation policy.

The Group achieved like-for-like portfolio valuation uplift of $356 million (7.9%) over the twelve months to

30 June 2022. The Group’s portfolio was valued at $5.1 billion, up 13.3% from $4.5 billion as at 30 June 2021.

The value of the Group’s office portfolio increased to $3.4 billion at 30 June 2022, 4.3% higher ($129.6 million) on a like-for-like basis than as at 30 June 2021. 79% of the Group’s office assets increased in value.

The value of the Group’s industrial portfolio increased to $1.7 billion as at 30 June 2022, 15.1% higher ($226.4 million) on a like-for-like basis compared to 30 June 2021. 99% of the Group’s industrial assets increased in value.

Outlook

The changing external environment going into FY23 has created a challenging period for the A-REIT sector with markets responding to and anticipating further central bank rate rises, increasing interest costs, and the impact of higher inflation.

Growthpoint’s exposure to favoured industrial and metropolitan office markets and secure income from large corporate and government tenants provides a resilient foundation for the Group.

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