GARDA Diversified Property Fund (ASX:GDF) 1H18 results & outlook


by Rachael Jones

GARDA Capital Group (ASX:GCM) Executive Chairman Matthew Madsen talks about the GARDA Diversified Property Fund (ASX:GDF) 1H18 results, portfolio metrics and new developments.

Rachael Jones: Hello I’m Rachael Jones for the Finance News Network. Joining me from GARDA Diversified Property Fund is Executive Chairman, Matthew Madsen. Matthew, welcome.

Matthew Madsen: Thank you very much.

Rachael Jones: First up, if we could start with a brief introduction to your company?

Matthew Madsen: GARDA Diversified Property Fund holds about $300 million of assets under management. These are commercial industrial properties located along the eastern seaboard. The Fund has nine properties, a market capitalisation of about $160 million. Gearing for us will long term, sit between about 30 and 35 per cent. Predominantly these assets are located in Queensland and Victoria, about 55 per cent to Queensland and 45 per cent to Victoria, and 70 per cent commercial and 30 per cent industrial.

Rachael Jones: Now to your 1H18 results. What were the highlights?

Matthew Madsen: 1H18, a number of really great operational events that occurred during that six months. So occupancy in our portfolio increased from 93 to about 97 per cent. And you’ll start to see that impact our revenue mainly FY19, rather than the second half FY18. Also we acquired a new property in Melbourne with the Botannica 9 project. And this is a new build for us, delivering 7,200 square metres of commercial office into one of the tightest office markets in Australia, with about two per cent vacancy. Outside that from a distribution perspective, we have payout ratios in the low 90 per cents, about 91.5 per cent. And so we’re very pleased with the first half that we’ve played in.

Rachael Jones: To your portfolio. Can you tell us more, starting with your tenant profile?

Matthew Madsen: Our top 10 tenants represent about 64 per cent of our income, many recognisable names amongst those. So Blackwood & Son is our largest tenant, representing about 11 per cent of income. Blackwoods is an industrial safety business, so wholly owned subsidiary of Wesfarmers (ASX:WES), but they’ve been operating for over a century. And we have State and Federal Government amongst our tenant base as well. A number of recognisable businesses, such as Golder, a global engineering business. Fulton Hogan New Zealand, construction for structure business and outside of our top 10, many recognisable brands in three of the banks, NAB (ASX:NAB), Suncorp (ASX:SUN), ANZ (ASX:ANZ). Professional services businesses like BDO Australia, Graeme Thornton, so a very diverse spread of industry type and a very strong base.

Rachael Jones: Can you tell me more about types of properties and location?

Matthew Madsen: The types of properties as we’ve said are commercial industrial. We only invest along the eastern seaboard, as far west as Canberra perhaps. We’re very much focused on investing in real estate markets with very low incentives. So you’ll see we have a concentration of commercial properties in Melbourne, whereas our industrial assets are more predominantly based in Queensland. In terms of our assets, there’s a combination of newer longer WALE, longer leased properties and acombination of things that require a bit more active asset management. So that’s a repositioning and reinvestment program, such as our Cairns commercial building, or whether it’s building buildings from the ground up, such as our Botannica 9 project in Richmond in Melbourne.

Rachael Jones: What are your key metrics?

Matthew Madsen: Key metrics for us, what keeps us focused is maintaining our balance sheets, a nice conservative gearing around 30 to 35 per cent, as our longer-term view. Currently we have net debt of about 25 per cent, we might operate up into the 40s from time to time. Predominantly, metrics that people wish to focus on is distributions and payout ratio. As I said, the first half payout ratio was around 91.5 per cent.

Rachael Jones: You have several projects in construction. What stage are they and how will they complement the existing properties?

Matthew Madsen: We have three projects in construction, there’re two in Brisbane and one in Melbourne, as we spoke of. And the two in Brisbane are both industrially focused and each of those should be finished around the middle of the year. One of those projects is a soil recovery and recycling facility. This is largely a hardstand project and it’s located near the Brisbane airport, in Seaport. Conversely Mobile Trucks Australia’s new national headquarters is being constructed, out at Wacol. So very good transport corridors and distribution from there, so each of those buildings about the middle of the year.

The third building Botannica 9, this is a project that commenced construction late last year when we settled on the site. And that building should be finished about this time next year. So a combination of industrial and commercial to complement the balance of the portfolio. And from our perspective, properties that are being delivered in very low incentivised markets, which is extremely important for us.

Rachael Jones: Last question Matthew. What’s the guidance for the second half of 2018?

Matthew Madsen: The guidance for 2018 will again be nine cents per unit, current trading price is about a 7.8 per cent yield, coming out of our Fund. And importantly for investors, 50 per cent of that is tax deferred.

Rachael Jones: Matthew Madsen, thanks for the update.

Matthew Madsen: Thank you very much.