Growthpoint Properties Australia (GOZ.AX) Earnings Call Transcript & Summary

Good morning, everyone. I'm Andy Fay, Chairman of Growthpoint Properties Australia. On behalf of the Board, it's my pleasure to welcome you to the Annual General Meeting of Growthpoint Properties Australia Limited and the meeting of the unitholders of Growthpoint Properties Australia Trust, which are being held concurrently as a hybrid meeting in person and online. With a quorum present, I'm pleased to officially declare the meeting open. I'd like to acknowledge the Traditional Owners of country throughout Australia and recognize their continuing connection to land, water and community. Today, we join you from the traditional land of the Gadigal people of the Eora Nation. We pay our respects to elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples joining us in person or online. Today, I'm joined by my fellow directors, Michelle Tierney, Panico Theocharides, Josephine Sukkar, Estienne de Klerk, Deborah Page, there on my right. And on my left, we've got Norbert Sasse and Tonianne Dwyer. And of course, our CEO, Ross Lees. Ross Lees, yes, who's Managing Director and Chief Executive Officer. We will now -- we will hear from Michelle, Panico and Josephine later in the meeting in relation to their reelections. Members of the management team in attendance include Minas Frangoulis, our Company Secretary, to my left; and Jacquee Jovanovski -- the rest of the management team is in the front row; Jacquee Jovanovski, our Chief Operating Officer; Sean Scanlon, our Interim Chief Financial Officer; Michael Green, our Chief Investment Officer; and Sam Sproats, our Executive Director, Funds Management. Katie Struthers also joins us as the lead audit partner from EY or Ernst & Young. Turning to the agenda for today. I will begin with a few procedural items and then say a few words before handing over to Ross for his presentation, and finally move to the formal business of the meeting. The notice of meeting and explanatory notes have been made available to all securityholders, and I'll take them as read. By participating in today's hybrid meeting, securityholders and proxies can vote -- can ask questions and cast votes in person or online. Questions will be addressed after the CEO's remarks and during each item of business. Online questions can be entered from now on and will be addressed at the relevant time. To ask a question through the online platform, the Q&A icon, select your relevant topic, type your question and press send. Questions may be moderated for clarity and to avoid repetition. For securityholders online who wish to ask verbal questions, please follow the instructions on the online platform. In-person attendees should raise their red or yellow securityholder card to ask questions and wait for a microphone. When asking a question, please state your name, the company you represent, if relevant and identify yourself as a securityholder or proxy. Questions from the floor will be addressed first before moving to the online platform. I may redirect questions to the relevant person as appropriate. All eligible securityholders, their attorneys and proxies and representatives can vote on the resolutions. Voting will be conducted by way of a poll on all items of business. Christina Piccolo from Computershare is the returning officer. Online attendees eligible to vote can vote -- can use the vote icon to cast their vote, which are recorded automatically. Votes can be changed until voting is closed. In-person voters will complete their voting cards after all items of business are discussed. Voting is now open online for all items of business. I'll advise you before I move to close the voting at the end of the meeting. A recording of the meeting and presentations will be available on the website after the meeting. The 2025 financial year was defined by volatility and uncertainty in our operating environment. Elections in both Australia and the United States, random tariff settings, heightened geopolitical tension and ongoing cost of living pressures and the renewed political debate around flexible working arrangements all influence sentiment and activity through the year. Despite this backdrop, investment markets focused on the emerging positives, easing inflation, associated interest rate cuts and the transformative potential of artificial intelligence and its emerging real-world implications. The property sector is not immune to AI-driven shifts, and I'll touch on this shortly. Amid these conditions, the team delivered significant leasing success, maintaining high occupancy rates and strong weighted average lease expiry. As a result, funds from operations exceeded initial guidance and ordinary distributions were in line with forecast. During the year, we established 2 new Growthpoint funds, adding meaningful assets under management. These initiatives, combined with asset recycling and disciplined capital management enabled us to reduce gearing despite of a portfolio devaluation of 3.5%, most of which occurred in the first half and primarily related to Victorian office assets. Pleasingly, Growthpoint's total securityholder return of 16.7% outperformed the S&P/ASX 300 Index, which returned 13.8%. In February, we announced our refreshed purpose, creating value beyond real estate. Our vision is to create sustainable value in everything we do to be the forward-thinking and trusted partner of choice as we deliver growth through funds management partnerships underpinned by the income-driven returns from directly held high-quality real estate assets. Ross will outline some of the initiatives already underway that brings this vision to life. As noted in the annual report, the Board undertook a comprehensive review of our executive remuneration framework during the year. The updated structure effective from FY '26 aligns more closely with the strategic pillars shown on the screen and supports our focus on attracting and retaining talent -- high-performing talent while strengthening the alignment to securityholder outcomes. Looking forward, artificial intelligence will continue to influence our industry from increasing demand of data infrastructure to higher energy costs, shifts in employment patterns, potential productivity gains and changing capital flows. These dynamics will create new challenges and opportunities for Growthpoint. We remain confident that the population growth, a resilient economy and the emergence of new industries will underpin the medium-term demand. When combined with the constrained supply, particularly in metropolitan office sector, where reduced capital allocation and ever higher replacement costs are limiting development, we expect conditions to become more favorable across our portfolio over the coming years. We enter FY '26 with considerable momentum across leasing and funds management activities. We have recently reconfirmed our earnings guidance and distribution guidance for the year. On behalf of the Board, I'd like to thank the leadership team and acknowledge Dion Andrews, who stepped down as Chief Financial Officer in August; and Michael Green, who after 16 years, has announced his resignation as Chief Investment Officer. Dion and Michael have both played pivotal roles in the Growthpoint journey from a $744 million portfolio to the $5.4 billion platform we operate today. We thank them sincerely for their significant contributions. I also extend my appreciation to my fellow directors, our talented employees, quite a few here, and our valued tenants, suppliers and stakeholders for their ongoing support and commitment. The Board and management team remain focused on executing our strategic priorities and maximizing outcomes for you, our securityholders. Thank you for your continued trust and investment in Growthpoint, and I'll now hand over to Ross, who will provide an update on the business.

Thank you, Andy, and good morning to everyone joining in person and online. Today, Growthpoint manages $5.4 billion of assets across our 3 target sectors of industrial, office and retail. Our directly held portfolio of $4.1 billion comprises high-quality metropolitan assets with strong sustainability credentials and modern industrial assets anchored by leading tenants in prime locations. The portfolio is geographically diverse and predominantly leased to listed companies and government entities, providing a resilient and stable income foundation. Within our stable funds management -- scalable funds management platform, we provide -- we manage $1.4 billion of assets on behalf of our institutional and wholesale syndicate partners. Our national footprint, exceptional people, sustainability focus and target strategy set Growthpoint apart. Financial year '25 was my first full year as your Managing Director and CEO, and I'm proud of the progress we've made. Despite the volatile operating environment, we delivered strong portfolio performance, launched our first new funds under the Growthpoint name and strengthened our balance sheet. From a financial perspective, we delivered funds from operations of $0.233 per security, ahead of our guidance, and we distributed $0.182 per security plus a special distribution of $0.021 to aid the payment of capital gains tax associated with the GALP transaction. And finally, we generated $335 million from asset recycling, reducing our gearing to 39.7%. These results reflect the strength of our refreshed strategy, growth through funds partnerships underpinned by income-driven returns from high-quality real estate assets. The strategy is built on 4 pillars, and we made measurable progress against each throughout the year. First, our portfolio performance. Strong leasing execution in our directly held portfolio of office of over 23,000 square meters delivered above-market occupancy of 92%, a weighted average lease expiry of 5.5 years and like-for-like growth of 2%. Specifically within the office portfolio, we are focused on directing capital into our vacancies to create turnkey solutions and deliver leasing on vacant space. Leasing over 100,000 square meters within the industrial portfolio saw the WALE increase to 5.8 years with 98% occupancy and 6% like-for-like growth. And importantly, our customer focus drove our landlord satisfaction scores of 8.2 out of 10 for office and 7.9 out of 10 for industrial. Second, on our growth with partners. We launched the Growthpoint Australia Logistics Partnership and the Growthpoint Canberra Office Trust, adding $328 million in new assets under management and growing our funds management revenue by 20% over the year. We raised $170 million in equity from new fund investments, over $45 million of this were investors that were new to the Growthpoint platform. Co-investment is one of our key differentiators in our approach to funds management, aligning us with our partners and creating value for securityholders. We've co-invested $37 million with our investor partners during the year. Third, on capital management. We proactively deleveraged, selling assets in line with book value to generate $335 million in net proceeds and negotiated $645 million in bank debt, extending our nearest maturity to December 2026. We closed the year with 84.8% hedging, providing increased certainty in a volatile interest rate environment. Our debt book remains diversified with 22 lenders, and we have significant headroom in our covenants, giving us flexibility and optionality. And fourth and finally, sustainability. We achieved net zero on 1 July 2025, and our continued focus on neighbors and GRESB as well as further sustainability-linked loans issuance bring them to 68% of our debt book, delivering both margin benefits and reinforcing our commitment to sustainability. As we look to FY '26, our priorities are clear. We will maintain our customer focus to deliver both high occupancy across our portfolio and continue to derisk near-term expiries. We'll deliver new fund products and provide liquidity for maturing funds, continue our disciplined capital management and sustainability initiatives and support the ongoing development and capability to execute our strategy. Since July, within our direct portfolio, we've agreed -- executed or agreed leases for 32,000 square meters of office space and over 88,000 square meters of industrial, lifting our pro forma occupancy to 94% and 99%, respectively. We've recently expanded the Growthpoint Australia Logistics partnership, and we continue to pursue new opportunities for new fund creation with both institutional and wholesale syndicate investors. We're concurrently managing fund realizations to secure liquidity for those investors in line with our existing fund terms. Our people are central to our success, ensuring we can deliver our vision of being a forward-thinking trusted partner. Our team engagement score in FY '25 was 75%, above the property sector average of 71% and 21% of our team received internal promotions through the year. We are investing in leadership and culture to support our growth, challenging our ways of working to ensure we can deliver for our customers and foster collaboration and innovation within our business. I'd like to echo Andy's sentiments to acknowledge the contributions of Michael Green and Dion Andrews and thank them for their tireless efforts during the time at Growthpoint. Nick Kost will join our leadership team as Group Executive and Head of Property in December, and Nick has ably led our property team since 2021 and his elevation to the executive team ensures seamless continuity for our customers and team. Looking forward, we expect to see limited supply across the office, industrial and retail sectors, a stabilizing valuation environment and a more positive operating conditions. We reaffirm our FY '26 funds from operations of $0.228 to $0.236 per security and distributions of $0.184 per security. I'd like to extend my thanks to the entire Growthpoint team, whose dedication and hard work continue to drive our success. To our securityholders, thank you for your support. We are pleased to have delivered positive total securityholder returns in FY '25, and we are committed to continue to create value for our securityholders and all stakeholders beyond real estate. I will now hand back to Andy for the formalities of the meeting.

Thank you, Ross. Before we move to the formal part of the meeting, I would like to address any questions in relation to Growthpoint or our presentations. I can confirm that we received no questions in advance of the meeting. Are there any questions from the floor? Back there.

My name is [ EL ]. I'm here as a proxy. I represent the Sustainable Investment Exchange, which is a shareholder group. So as a group representing shareholders, we are concerned about your exposure to gas risks, and I have 2 questions regarding how you're addressing them. In Australia, sharp price increases are highly possible as the East Coast gas market is predicted to face a shortfall in supply by 2026 in states where you have numerous facilities, exposing the company to gas price increases and potential operational disruptions. You've mentioned a focus on sustainable growth at the beginning of this meeting. Last financial year, Growthpoint also said a key focus on reducing emissions was doing feasibility assets for the 5 commercial assets to replace gas boilers with electric heat pumps. Growthpoint also said where gas was used in buildings because abatement isn't feasible, carbon offsets would be prioritized over electrification. So my 2 questions. Firstly, can you tell us why this assessment was limited to only 5 out of 66 total properties that Growthpoint owns considering heat pumps are generally one of the cheapest ways to reduce emissions in the real estate industry due to the cost competitiveness with gas boilers?

Okay. First of all, thanks for coming to the meeting, and thank you for your question. First thing I'll say is that we have a very strong focus on ESG. We've actually gone to net zero 1st of July this year. And we do that primarily by buying real green electricity. We actually -- I think we've only got the 5 gas boilers left. I think everything else has been firstly transferred. I want to check with my team. But where we have gas, it's only because we haven't been able to transfer across to electrification. And what we do there is we buy high-quality certified offsets, and that's what we use there. So the exposure to the total portfolio is not huge. The number, I think the green offset -- 76% of our electricity is actually green power. We have 10% with solar on the roofs and then the rest is the offset. So it's a relatively small portion of our book. As to exposure to the cost of gas, I don't think it's going to be significant across the portfolio, but I might hand over to...

Just in relation to the cost of gas as it comes through our portfolio, a lot of that utility cost is actually borne by the tenants within the portfolio as a direct consumable from their tenancy. So for exposure to Growthpoint and its securityholders, we're obviously looking to manage those -- how that renewable energy is coming into our portfolio in that electrification process. But the cost escalations are typically borne by the tenants within our assets.

[indiscernible]

Wonderful to hear about Canberra as well. The second question is following up on something you also mentioned. In what ways do you investigate the offsets that you prioritize for the other companies when there have been publicized failures of the effectiveness of carbon offsets, even supposedly high-quality Australian ones to actually reduce emissions.

I might hand across to Ross, but we have a dedicated internal team. We have processes that we follow and we make sure that they are verified. And I'll just hand across to Ross.

I mean the offsets we use aren't significant in relation to the overall method of getting to net zero. And insofar as the process for investigating those offsets, it's something that the team monitor. I'll have to come back to you specifically on the details of the exact procedure we go through, but it is something that our committees consider when we're looking at those offsets and making sure they're sourced appropriately.

Any other questions from floor? Can we just make sure when someone is answering also they get a microphone as well. Any other questions from the floor? No. Any questions online?

Chair, we have an online question from [ Katja Basil ] from the Australian Shareholders' Association. The question is, given the scarcity of market transactions, has there been any sign of increased activity in either commercial offices or industrial property? And what impact, if any, will this have on December 2025 valuations?

I'll hand that across to Ross.

Thank you for the question, Katja. Your comment there is about office and industrial transaction activity in the market. I think starting with industrial, there's actually been significant industrial transaction activity in market. So there hasn't really been a shortfall of evidence for valuers to rely upon. And looking within our portfolio, we saw valuation steadiness or gain over the 12 months to 30 June 2025. The office sector probably has had more patchiness to it and valuers have had trouble sourcing a high level of transaction evidence in which to bring valuations through. I'm sure as you can appreciate, we can't comment on the forward outlook for our valuations as we come towards December. I think as a market statement overarching within the market, people believe that there's a stabilization of the valuation outlook as it relates to commercial office. We have seen transactions through the market this year that's giving valuers more comfort to base their assumptions on.

Any other questions?

Chair, we have one further question from [ Katja Basil ] from the ASA. Can you provide an update on the progress being made with the funds management business, which you acquired in September 2022, please?

Yes. Look, it's been a fairly successful year. I think the total fund $328 million has been added, including the 2 funds that we mentioned. One of them is -- it was in Ross' speech, but the diversified assets across the industrial portfolio with Angelo Gordon, a client. And then we've also had a Canberra office building that we bought in. We are looking at another and expect to close on a portfolio -- another opportunity fairly soon. And hopefully, we'll have some good news there. But we feel like the business is in a good place. We've got the right team, and we're actively building it out. Do we have anything more?

No further questions on this item, Chair.

All right. As there are no further questions, we'll move to the formal items of the business. The first item of business is to receive and consider the financial reports of the directors and the auditors in respect to Growthpoint Properties Australia financial year ended 30th of June 2025. There is no vote on this item. A combined annual report of the company and trust was mailed to the securityholders who elected to receive it and is also available on the ASX platform and on the group's website. Representatives of the company's current auditor, EY, are here today to answer any questions on the audit, auditor's report, the accounting policies adopted and the independence of the auditor. Securityholders were invited to submit questions in advance of the meeting, and I can confirm none were received. And actually, there were none for any of the items of business. I will now invite questions on the consideration of the financial reports. Are there any questions on the floor? No. Any questions online?

Chair, we have one online question from [ Katja Basil ] from the Australian Shareholders' Association. The question is, today, I hold proxies for approximately 250,000 shares in Growthpoint Properties Australia to a value of approximately $0.63 million based on yesterday's closing share price. Mr. Chairman, we note you have amended your LTI award ROE measure from a relative basis to an absolute basis. Can you please explain what impact this has and why this change was made?

Okay. So the first thing is what we did, and I mentioned it, we actually brought in a -- we hired a remuneration consultant, and they looked at our scheme. When we looked at our competitors, most of them looked at an absolute rather than a relative ROE. In fact, there was only one other, I think, in the whole market that looked at relative ROE. So to be able to attract talent and reward them, we want to have a scheme that works there. That said, it's still a very good measure, and it's about returns that shareholders actually receive. So we see it as an alignment to the shareholders. The targets that we've set are aggressive and the team will have to do well to achieve them. And so it was one of the 3 measures that we moved to. So we see it as both a benefit for the shareholders, but also an attracting staff. Are there any other questions?