Growthpoint Properties Australia is a fully internalised real estate trust investing in Australian office and industrial properties, and holding 100% stakes on its balance sheet.
It is a pure landlord, with no fund management or development business, with assets under management worth about A$2.2 billion.
Growthpoint provides an attractive 2016 financial year estimated dividend per share yield of 6.4%. However, our concern lies with the ongoing leasing risk facing the group in a time where demand for office space is weak, particularly in Brisbane.
Earnings are sensitive to loss of rental income and with leasing conditions soft, this is a key concern.
GOZ is currently trading at a premium to net tangible assets and our price target.
We believe the most upside lies with mitigating leasing risk over the medium term.
Assuming no downtime across leases expiring in 2016 and 2017 (representing 7% of portfolio area). There is further scope for cap rate compression across both office and industrial. A 50 bases point firming in the portfolio cap rate would add 5% to our Net Asset Value.
The downside risk lies with medium term lease expiries, as noted above.
Our base case is for 6-months downtime, with risk to this being extended to 12-months.
The company is currently trading above our target and although the yield makes the stock attractive, I would look to acquire on weakness below $2.90.
Recent highs have been $3.35; it is currently trading around $3.08.
For more information about Growthpoint Properties Australia please contact us on 07 4771 4577.