REITs

Growthpoint Properties guides to higher FFO on strong performance

Thu 23 Jun 22, 11:09am (AEST)
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Key Points

  • Growthpoint upgrades FY22 funds from operations guidance to "at least" 27.7 cents per share
  • The REIT also announced a distribution of 10.4 cps for the six months through June
  • Increased valuations are expected to contribute around 8 cents per security increase to the REIT’s net tangible assets

Growthpoint Properties (ASX: GOZ) was up 2.50% at the open after upgrading its FY22 funds from operations (FFO) guidance to "at least" 27.7 cents per share (CPS), up from the 27cps announced last December.

Management attributes a minimum of 7.8% growth over FY21 to ongoing leasing successes across the portfolio.

Today’s guidance also envisages no significant market movements or unforeseen circumstances occurring during the remainder of FY22.

Due to the continued strong performance of the group over the year, the REIT also announced a distribution of 10.4 cps for the six months through June.

Higher valuations

To the uninitiated, for more than 12 years, the REIT has been investing in high-quality industrial and office properties across Australia and owns/manages 58 properties – 31 industrial and 27 office - valued at approximately $5.1 bn.

Timothy Collyer, managing director attributes the growth in preliminary draft external valuations – which indicate a $64.51m increase (2.2%) - to the resilience of the REIT’s growing property portfolio, and particularly, ongoing strength of the industrial market and leasing success across both office and industrial portfolios.

Increased valuations are expected to contribute around 8 cents per security (cps) increase to the REIT’s net tangible assets (NTA), to $4.63 per security pro forma, from $4.55 at 31 December 2021.

A resilient foundation

Despite Growthpoint’s exposure to a higher interest expense on its floating debt - with circa 60% of its debt forecast to be fixed as at 30 June 2022 – Collyer reminds investors the REIT has ample head room to debt covenants and no hedges expiring in FY23.

"The Group’s exposure to favoured industrial and metropolitan office property markets and secure income from predominantly large corporate and government tenants provide a resilient foundation for our business," Collyer noted.

Recent developments

Since the start of the year the REIT has:

  • Settled its acquisition of 2-6 Bowes Street, Phillip, ACT

  • Purchased 141 Camberwell Road, Hawthorn East, VIC

  • Seen Woolworths exercise their five-year lease option for their Qld distribution centre at Larapinta and received the rental determination

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Growthpoint share price: A 12 month snapshot.

 

What brokers think

Growthpoint’s share price is down -16.71% for the year and is down -20% since late April.

Consensus on Growthpoint is Moderate Buy.

Based on Morningstar’s fair value of $4.16 the stock appears to be undervalued.

Based on the three brokers that cover Growthpoint (as reported on by FN Arena) the stock is currently trading with 25.3% upside to the target price of $4.24.

After accounting for rising costs and interest rates, Credit Suisse has adjusted estimates for A-REITs and reduced its target price on Growthpoint to $4.27 from $4.46.

The Neutral rating is retained. (02/06/22).

While Macquarie expects the recent purchase of the Dandenong Government Service Office for $165m to be 1.8% accretive to annualised funds from operations, the broker does not expect the acquisition to impact notably on FY22.

The broker’s Outperform rating is retained and the target price decreases to $4.47 from $4.63. (31/05/22).

While Ord Minnett sees emerging value in the A-REIT sector, due to a stabilisation of long-term bond yields and moderating market cash rate assumptions, the broker lowers its target price to $4.00 from $4.20.

Hold rating is retained (27/05/22).

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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