Growthpoint acquires $165m office block in Melbourne‘s Dandenong

Growthpoint Properties (ASX: GOZ) was up 3.11% at the open after the large-cap REIT revealed greater exposure to government covenants in strategic urban locations through the purchase of Government Service Office building in Dandenong for $165m from Dandenong GSB.

The 15,071 sqm property with ground floor retail, seven floors of A-grade office accommodation is 99.7% occupied, including a lease deal with the Victorian government with a long weighted average lease expiry (WALE) of 9.5 years.

FFO accretive

Subject to the approval of the Foreign Investment Review Board (FIRB) approval, the REIT expects the settlement to occur in the coming weeks and expects it to be accretive to FY23 funds from operations (FFO).

The Victorian State Government lease provides fixed annual 3.5% rent reviews, and the remaining space is leased to eight ground floor retail businesses.

The acquisition will be funded using debt and is being acquired on a 5.3% initial income yield.

After settlement, Growthpoint expects to have approximately $184m of undrawn debt facilities and gearing of approximately 33.9%.

Improving demand

Today’s announcement follows the REIT’s recently released third quarter FY22 trading update which was highlighted by a continued improvement in national office tenant demand, with effective rent growth recorded in all major markets and a decline in vacancy rates (except in Perth).

During the quarter, Growthpoint entered into eight leases across its office and industrial portfolios, representing 6.0% of portfolio income. The WALE of the new leases was 5.6 years and the weighted average rent review was 2.8%.

Portfolio occupancy 97%

At 31 March 2022, the REIT’s WALE was 6.4 years, an increase from 6.3 years at 31 December 2021, and portfolio occupancy remained consistent at 97%.

Growthpoint’s gearing was 31.9% as at 31 March 2022, increasing 250 basis points on 31 December 2021.

The REIT reaffirmed the guidance provided on 14 December 2021 of FY22 FFO of at least 27.0 cents per security (cps), representing a minimum of 5.1% growth over FY21, and FY22 distribution guidance of 20.8 cps, up 4% on FY21.

Growthpoint: A 12 month share price snapshot.