Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Growthpoint Properties Australia (ASX:GOZ, Financial) delivered FFO above upgraded guidance, with a final $0.239 per security, 3.5% above the top of the initial guidance range.
- The company maintained 100% occupancy in its industrial portfolio and increased office portfolio occupancy to 92%.
- Growthpoint is on target to achieve net-zero across its directly owned office assets and corporate activities, including maintaining high NABERS ratings.
- The company extended $470 million of debt facilities, reducing refinance risk and maintaining a strong capital position.
- Growthpoint's funds management business managed $1.6 billion in assets and achieved an 11% IRR on the sale of Taylors House.
Negative Points
- FY24 property FFO decreased by 2.3% like-for-like, excluding the impact of surrender payments, due to the sale of two properties and higher finance costs.
- The weighted average cost of debt increased over the year, impacting overall financial performance.
- The office portfolio's average incentives on new leases were 23%, indicating higher costs to attract tenants.
- Growthpoint faces challenges in leasing the remaining 10,000 square meters at 5 Murray Rose Avenue in Sydney Olympic Park.
- The company provided lower FFO guidance for FY25, between $0.223 and $0.231 per security, due to anticipated higher interest expenses.
Q & A Highlights
Q: Good morning, Ross, Dion, and Michael. Congratulations, Ross, on the new role. My first question is around the renewed focus on the fund management platform. How are you thinking about Growthpoint's competitive advantage in this space, particularly with several of your peers also flagging a focus on a transition to a more capital-light structure?
A: Sure. Thanks, Caleb. Growthpoint stepped into this space in 2022 through the acquisition of Fortius. Despite the tricky market conditions, we are focusing on combining institutional opportunities with wholesale syndicates. We see attractive opportunities in the wholesale space, particularly in retail and office assets, and in logistics for institutional investors. Our competitive advantage lies in being largely conflict-free, having critical mass in office, industrial, and retail sectors, and leading the market in ESG and sustainability.
Q: The second question is on FY24 earnings, particularly as we think about cycling into FY25. Can you speak to what data plays first on the material base and how we should think about some of those more one-off type items that need to be cycled as we think about FY25 earnings?
A: Dion Andrews: In our guidance, we don't assume any one-offs, so they will cycle out going forward. The main impact on FY25 versus FY24 is the interest expense averaging up a little higher over the course of the year, which is why FFO comes in a little lower. There are no one-offs assumed in FY25. The difference was $14.5 million, with circa $5 million one-offs in FY24.
Q: Hi and good afternoon. Just a quick question around your office incentives. It looks like it ticked down quite materially in the second half. Can you chat through the leases and what was driving that?
A: Michael Green: We did 44 leases across the year with various incentive mechanisms. We had some particularly positive leasing results, which I can't detail due to commercial confidence. However, we did have positive net effective leasing spreads across our office leasing at 3%.
Q: Afternoon team. What does your guidance assume in terms of the take-up of vacant space and your expiries in '25?
A: Dion Andrews: We have some vacancy and leases to address during the year with various assumptions. We are not forecasting a material difference in leasing and vacancy across the year, but occupancy will move up and vacancy will move down slightly. Michael Green: We only have 5% of new leasing to do on top of what's currently vacant, so we are comfortable with what we need to achieve over 12 months.
Q: Could you provide more color around the progress with leasing at Sydney Olympic Park?
A: Michael Green: We have modified our strategy somewhat over the last 12 months. We have progressed a series of spec suites on the lower ground floor and are seeing good momentum. We also have a couple of groups looking at multiple floors, and I am reasonably confident we will show demonstrable change in occupancy in the short to medium term.
Q: On the industrial metrics, what would be your expectations for an asset like that in terms of downtime assumptions and potential rent revision?
A: Michael Green: Rent reversion on an asset like that would be similar to this year's leasing spreads. The inquiry in the market is still robust, particularly for high-caliber assets. We won't go into specific re-leasing spreads for confidentiality reasons, but we are confident in the market's robustness.
Q: What are your thoughts on the competitive landscape for fund management, given the focus on capital-light structures by peers?
A: Ross Lees: Our competitive advantage includes being largely conflict-free, having critical mass in office, industrial, and retail sectors, and leading in ESG and sustainability. We are well-positioned to scale up quickly and attract global investors focused on sustainability.
Q: Can you elaborate on the impact of interest expenses on FY25 guidance?
A: Dion Andrews: The main impact on FY25 guidance is the higher average interest expense over the year. This is the primary reason for the lower FFO guidance compared to FY24. There are no one-offs assumed in FY25.
Q: How are you addressing the leasing challenges at Sydney Olympic Park?
A: Michael Green: We have adjusted our strategy and are progressing with spec suites on the lower ground floor, which are already gaining momentum. We also have groups looking at multiple floors, and we are confident in improving occupancy in the short to medium term.
Q: What are your expectations for industrial rent reversion and downtime?
A: Michael Green: Rent reversion for industrial assets is expected to be similar to this year's leasing spreads. The market inquiry remains robust, particularly for high-quality assets, and we are confident in the market's strength.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
