Growthpoint Interactive Half Year Report 2018

Growthpoint Properties Australia 2018 Half Year Report 18 Office Portfolio Review Business confidence and employment growth support demand for office space Summary In the first half of FY18 Growthpoint’s office portfolio achieved valuation like- for-like growth of $80.8 million (3.9%), additional leasing of 9,990 sqm (3.5% of total office portfolio lettable area) and maintained occupancy at 98%. The main drivers for office demand continue to screen positively, with solid employment growth and business confidence and conditions tracking above long run averages. Most major office markets recorded positive net absorption over the period, leading to rent growth in most Eastern seaboard office markets. Australian office markets continue to attract significant volumes of capital from domestic and offshore investors. Australian office investments remain attractive given healthy yield spreads and improving leasing fundamentals, particularly in Sydney and Melbourne. Strong competition in the Sydney and Melbourne markets has led investors to consider other markets including Brisbane CBD, Adelaide CBD and Canberra CBD which offer comparatively higher yields. Similarly, capital continues to seek placement in suburban office markets placing further downward pressure on yields. While the tightening in office yields has made the market for direct office acquisitions constrained, it provides opportunities for the Group to divest assets which (a) are considered no longer core (typically due to size or location), (b) have reached their peak value to Growthpoint (typically due to leasing completed, building age or WALE) or (c) present an income or value risk to Growthpoint (typically due to a potential vacancy in a particular period). Strong pricing also provides opportunities to divest assets where higher underlying values can be realised particularly where development opportunities exist from rezoning to a higher and better use. Leasing HY18 was another successful period of leasing for Growthpoint with more than 9,990 sqm leased across the office portfolio. Highlights include: • • Renewal of lease to Westpac Banking Corporation at 7 Laffer Drive, Bedford Park, South Australia for a further 7 years. The lease renewal to Westpac begins on 23 July 2018 and comprises 6,343 sqm with fixed rent increases of 3.00% per annum. • • Further leasing success at 333 Ann Street, Brisbane, Queensland over the half brings total occupancy to 87%, from 44% at 30 June 2015. LGIA Super signed a new 10-year lease comprising 867 sqm in addition to extending their existing lease of 1,734 sqm by over 3 years. • • Two new leases at Building C, 211 Wellington Road, Mulgrave, Victoria. Corning Optical Communications committed to 652 sqm for 5 years from 24 July 2017, while Toshiba (Australia) leased 506 sqm for 8 years from 1 November 2017. They join existing tenants, BMW Australia Finance and Guardian Community Early Learning. Growthpoint’s major tenants in Buildings 1 and 2 within the Botanicca Corporate Park in Richmond, Country Road/David Jones, have commenced moving into their new national headquarters. Building 1’s fitout is complete and will house 700 people by March this year. David Jones will commence fitout works to Building 2 from April 2018. Valuation Continued investor appetite for office assets along Australia’s Eastern seaboard and improving market rent fundamentals resulted in valuation increases across Growthpoint’s office portfolio. Since 30 June 2017, the value of the office property portfolio (excluding acquisitions and disposals) increased by $80.8 million or 3.9% on a like-for-like basis. The weighted average capitalisation rate across the office portfolio tightened from 6.3% to 6.1%. Office portfolio key statistics (as at 31 December 2017) — — $2,157.7 million total value — — 286,532 sqm total lettable area — — 6.1% weighted average capitalisation rate — — 66% of Growthpoint’s property portfolio — — 98% occupancy — — 5.9 year WALE — — 3.5% WARR — — 25 assets Andrew Kirsch Asset Manager Cathy Ciurlino Asset Manager