Transcription of Finance News Network Interview with Growthpoint Properties Australia Ltd (ASX:GOZ) Managing Director, Timothy Collyer.
Carolyn Herbert: Growthpoint Properties is an ASX-listed landlord investing in Australian office, industrial and retail real property with a portfolio currently worth $2.4 billion. The company was recently included in the S&P/ASX 200 Index.
I’m Carolyn Herbert and joining me at the CEO Sessions in Sydney is Growthpoint’s Managing Director Timothy Collyer.
Tim, welcome to FNN.
Timothy Collyer: Thank you Carolyn.
Carolyn Herbert: Tim,could you start by giving us an introduction to Growthpoint Properties Australia?
Timothy Collyer: Certainly – well Growthpoint is listed on the ASX; it has a market capitalisation of about $1.8 billion. As you said in your introduction, we own commercial and industrial property around the country. We have 54 properties valued at $2.4 billion. We came into being in 2009, when Growthpoint Properties of South Africa first invested and recapitalised a listed company and that began Growthpoint Properties in Australia.
So since that time we have – early in the days, we restructured and recapitalised it, and essentially started the business here in Australia and we’ve built the assets from about $650 million, in that time, up to the $2.4 billion. Our simple philosophy is we’re a landlord of quality commercial real estate around the country and we receive the rental income from the properties as our primary source of income – we pay the bank some interest of course; we pay some management expenses, and the balance goes to investors.
Carolyn Herbert: The company has just released its full year results for FY 2015, what were the highlights?
Timothy Collyer: We believe that this has been our best year to date; all facets of the business are performing very well. We had a statutory profit of $283 million and part of that statutory profit was a large increase in property values of about $183 million; so, we had good revaluation gains within the result.
Our distribution was achieved; our guidance, our earnings were strong – 6 per cent up on the prior year and, of course, our returns on the share market were very good. The total return to security holders for the 12 months was 36.4 per cent. We were one of the better performing AREITs over the last 12 months, and our return on equity – our balance sheet return – was very strong at 23.9 per cent. All in all, a most pleasing result for our security holders.
Carolyn Herbert: And what about the company’s gearing and average term of its debt - how has this changed from the previous period?
Timothy Collyer: Over the six years we’ve been operating, we have greatly reduced our gearing so we now have a target range of 35 - 45 per cent gearing and at balance date of June 30, our gearing was at 37 per cent. We have debt from banks and we also during the year obtained a credit rating from Moody’s so we got our first debt capital markets issuance so at June 30 we have an average term for our debt of about 4.7 years.
Carolyn Herbert: Looking at Growthpoint’s property portfolio, what is the split between office, industrial and retail?
Timothy Collyer: Yes, well we have a mandate to invest in all those sectors. Currently we haven’t invested in retail property so currently, we have about 50 per cent in the office sector, and about 50 per cent in the industrial sector – so typically CBD and suburban office buildings and also, on the industrial side, large distribution centres.
Carolyn Herbert: So how are they performing and what is the focus?
Timothy Collyer: The portfolio’s performing very well, we have 97 per cent occupancy; we have a long term average lease of 6.7 years. Embedded in our properties, we have rental increases annually of around 3 per cent so our income is growing all the time and, of course, we have good tenants, such as the Commonwealth government, Woolworths is our major tenant, GE, the State government of New South Wales. So we are very well placed, we have low expiries, lease expiries over the next couple of years so our income is fairly stable, so we are well placed in this market at this point in time.
Carolyn Herbert: And Tim where are your properties located?
Timothy Collyer: Principally along the Eastern Seaboard. We have about 82 per cent of our portfolio in Brisbane, Melbourne and Sydney - roughly, a third in Brisbane and Melbourne, and a bit over 20 per cent in New South Wales. We would like to increase our weighting to New South Wales, we believe the economy’s a good one at the moment and over the next period ahead we’ll be endeavouring to increase our New South Wales presence.
Carolyn Herbert: What do you look for when acquiring a property and what is your acquisition strategy moving forward?
Timothy Collyer: Well, firstly, we look at the property; the property has to be a good one. We typically go for modern properties where there’s low capital expenditure, obviously we look at the location of the property, the tenant, the growth in the income and these type of factors so firstly we have to be satisfied it’s a good property, then secondly we look at ‘how does this fit in with the growth portfolio, the Growthpoint portfolio?’ Do we have too many properties in that area? Are we already exposed to that tenant? So, it needs to provide some diversification and betterment of the portfolio and then of course we look at how ‘do we fund that acquisition?’ We look at our debt and our equity to fund it. And overall, if we’re bettering the group, bettering the portfolio then we proceed with the acquisition.
Carolyn Herbert: The company has implemented a 100% “pure landlord” strategy, why have you decided on this approach?
Timothy Collyer: Yes, so as you say, we are a landlord with 100 per cent of our income coming from leases. It’s probably more of a traditional approach, we don’t have businesses that develop industrial, or residential, we’re not in retirement, we’re not in funds management – it’s a fairly simple and transparent model, so in putting that together, we believe it’s lower risk than other things. We’re not exposed to development cycles and the source of the income is leases which are typically long term from quality tenants. It’s a model we understand, and as we own all the properties, Growthpoint itself owns all our properties, we can concentrate on just providing services to tenants and renewing leases.
Carolyn Herbert: Finally Tim, what is your outlook for FY2016?
Timothy Collyer: We have a positive outlook, as I said at the start, we are well placed going into 2016. We’ll be looking to acquire more properties, hopefully accretively, although opportunities are very difficult to attain at the moment there is a strong market. We look to go to the debt capital markets for some more debt, we will consider a selective disposal of assets that don’t meet our long term requirements and of course we have our guidance out there at the moment of 21.3 cents earnings and a distribution of 20.5, so that’s a 4 per cent growth on the previous year, so all in all we’re well placed and we look forward to another successful 2016.
Carolyn Herbert: Tim Collyer, thanks for the update on Growthpoint Properties.
Timothy Collyer: Great, thank you.