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Growthpoint – Spurt to Stall

People & Companies / Latest News


Feb 27 2017

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In its report on Growthpoint (GOZ), CLSA notes that its majority debt-funded acquisition of GMF enabled it to deliver an impressive 1H17 headline results with distributable income per security (DIPS) and DPS growth of 16.8% and 3.9% vs the PCP. GOZ maintained its upgraded guidance of DIPS of at least 23.3cps and distribution of 21.5cps.

However, with high gearing (42.5%) incremental equity issuance via DRP and potential asset sales, future DIPS growth is seen as limited, prompting CLSA to reduce its target price by 2%, from A$3.25 to A$3.18, and retain the Underperform rating with a c.8.1% TSR.

GOZ delivered 1H17 However, this accretion was attributed mostly to GOZ’s 1H17 acquisition of A$726m of GMF’s office assets funded by inexpensive debt provided an increase in both distributable income per security (DIPS) and dividend reinvestment plan (DPS) of 12.5¢ (up 16.8% vs 1H16) and 10.6¢ (up 3.9% vs 1H16). CLSA sees this growth moderating in 2H17.

CLSA also noted GOZ’s solid portfolio fundamentals, with a long weighted average lease expiry (WALE) of 6.3 years (office 6.9 years & industrial 5.3 years), low expiries with only 3% expiring in each of the next three FYs & high occupancy of 99% (office 98% & industrial 100%). Income stability is reinforced by 25% of its rent coming from Australian government entities and 57% from listed entities. The portfolio also has low Capex requirements due to a young building age (average office age of ~8 years and industrial ~10 years).

CLSA reduced the target by 2% to A$3.18 based on a blend of DCF (A$3.29, 67%) and 1H18CL NAV (A$2.96, 33%). GOZ is relatively inexpensive at a 13.4x FY17 PE with a distribution yield of 6.8%. This provides some valuation support which, together with GOZ’s steady property portfolio, partly balances against a lack of upside catalysts and the risk from high gearing at this point of the cycle. With a TSR of 8.1%, the Underperform rating for GOZ has been retained.

SOURCE: Editorial


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