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Edited Transcript of GDI.AX earnings conference call or presentation 26-Aug-19 4:30am GMT

Full Year 2019 GDI Property Group Ltd Earnings Call

SYDNEY Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of GDI Property Group Ltd earnings conference call or presentation Monday, August 26, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David John Williams

GDI Property Group - Joint Company Secretary & CFO

* Steven Neville Gillard

GDI Property Group - MD & Director

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to GDI annual results teleconference. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. Steven Gillard. Thank you. Please go ahead.

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Steven Neville Gillard, GDI Property Group - MD & Director [2]

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Welcome, everyone at GDI. We had another year of success. And we've positioned the portfolio to be heavily weighted to Perth, and we've delevered the balance sheet. And we're very disciplined with our balance sheet as we see there will be opportunities in the near future. The assets are well positioned to capture significant upside. And we've increased the NTA to $1.26, up $0.08 from June 2018. FFO $0.0896, distribution $0.0775, in line with guidance, and we've also -- we will maintain that distribution for the next 6 months -- or next 12 months, yes. Absolute total return 13.3% for FY '19. Absolute total return since listing 15.27% per annum. And securityholder return since listing 14.52% per annum.

We had a great start to FY '20. We've leased 14,522 square meters of the lower levels to the Minister of Works, which is basically the police; WAPOL to 12,700 -- approximately 12,700 square meters for 5 years commencing 1 February 2021. The lease has started then because on their existing lease, justice wanted to stay on for a bit longer, so it was much easier just to start the lease from February 2021. We've also leased the Births, Deaths and Marriages floor Level 10 for 6 years commencing February 2021. So Westralia Square is derisked, and we're very happy to lease those lower floors which don't have the -- particularly 1 to 6, which don't have the outstanding views. And also, we will be developing the building next door, and we feel that it was a great opportunity to lease those lower floors. I will talk a little bit more about Westralia Square in a moment.

We bought 180 Hay Street. We -- look, we bought that on a basis in -- for $2,500 a square meter, $12.59 million. We were basically going to warehouse that to put it into a fund. It was a great opportunity (inaudible) at $2,500. We've already got significant leasing interest in that building, just the whole building. So depending on what happens, we may turn it around. We've got a -- couldn't pull there, so that means that we can -- it could -- we can see significant upside in that Hay Street acquisition.

I'll just go through to the Perth market. As you can see on Page 8. You can see Westralia is the highest GDP growth forecast of any other state from 2019 to 2028. There's significant resources pipeline by state. We've got $234.5 billion of potential projects. Already $30 million or $40 million of those have started in the iron ore sector, and there's L&G -- I think that was about $30 million as well, so probably about $60 million has already started. They're talking about just in the iron ore area, they're going to have to employ 12,500 people. It's starting to bubble along. I mean, remember, these projects take a while to get prepared, but we're seeing a solid interest in that market. We do have a little bit of a dip in the sort of 50 to 500 square meter market and that's mainly due to these smaller companies not knowing what's happening because there's always significant projects happening, and they are unable to actually make a commitment on the lease, but they didn't have committed 100 square meters or 600 square meters.

David, I think we're just going to parting out for a moment.

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David John Williams, GDI Property Group - Joint Company Secretary & CFO [3]

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I think just in tenant size as well, getting through the May election might be different than those certainly reluctants in the first quarter. And we've seen a lot of confidence in that tenant size since May.

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Steven Neville Gillard, GDI Property Group - MD & Director [4]

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That's why, there was a carbon taxes -- there was, you know what. So it certainly gave a lot of confidence in the market. Look, there are forecasted vacancy. You can have a look at that from Jones Lang, but the reality is if you look at that photo on Page 7, we believe that the A and premium space would be in the vicinity of 6% or 7% vacancy. And there's minimal contiguous floors available roundabout -- a maximum of 4,000-odd square meters. So we've got Westralia Square derisked. We've got significant interest on Level 7, which nearly have the bottom half of the building leased. We know that UGL are going, which is good. And then we'll have all of the premium space renovated when the market is full in demand. There's already a couple of 10,000 square meter inquiries out there, 5,000, 3,000, and really we're the only building which can offer that sort of contiguous space. So we're going to be patient, and we're certainly not going to give the space away.

St. Georges Terrace, again, we've got -- basically -- we had that basically fully leased, with the CB&I floors vacated in May 2019. We've already got one floor occupied under license and we've seen solid interest in those floors. The leasing deals that we can see over in Perth that the incentives are contracting. And once they get to a certain level, we'll see -- we'll start to see that the net rates going up, but certainly effective rents, we believe, have decreased, and we have not been giving away our space.

5 Mill Street, which has been an absolute sterling performer. The vacancy has decreased from 100% to about 90%. One floor has vacated. However, that building is already having significant demand, and it is extremely popular building and we expect that to be pretty well fully leased in the near term.

We look at the development in relation to 1 Mill Street. We're waiting for the police to get the shortlist out. We believe it is going to happen in the end of August. Remember, we've got WAPOL of the police now as a tenant, and we can have the flexibility of relinquishing or extending should there be a development, it should vacate our space. So they've been delayed and obviously governments delay things. But we think we're certainly -- we're running the mix with that one. We've also got another major tenant inquiry in the vicinity of 40,000 square meters that we will be presenting to in early September. And so we've really got the best sites in relation to views, access to transport and having that St. Georges Terrace (inaudible). So we're moderately confident that we can get a fair commitment, but we're not there yet, and we will be launching a DA shortly.

And if I can just go back to Westralia Square, we've launched the DA for 3,500 square meters on that site next to the building. We've employed Dave Ockenden, who is ex-head of Development WA Brookfield and Lendlease, and already he's added significant value and we believe that we will put up to 10,000 square meters on that site. So that's roundabout an additional $40 million or $50 million profit in the development by getting that space. You remember, the site cost us nothing. And we don't have to risk weight. And we've got 563 car parks there. We don't have to build car parking, and it's a big location in the town in Brookfield Place.

If we go to the other buildings, Cavill Avenue, we had a little minor fall in rate occupancy to 94.35%. We've just signed the heads of agreement for some of that space, but we're getting at the Level 3 a vicinity of 4 15 net -- about 10% to 15% net incentives on net basis. And so that building is certainly punching well above its weight. Beside campaign, we want in the vicinity plus or minus 5 -- $105 million -- $110 million. We haven't received an offer of that as yet, and we're delighted to hold that building. This is still well below our replacement cost, and it's highest and best use is probably residential and with the best show in town. Any big name that lease expires goes to this building. And we're very happy with the performance of that building. We basically fully renovated now. We have magnificent end of trip facilities. We've got 450, 460 car bays. Views from Level 1 and it is a very popular building.

Townsville. We've signed a heads of agreement and we anticipate the lease to be signed in the near vicinity for a 6-year lease to the Department of Human Services for 4,600 square meters. So the ATO, their lease expired in February. They are building a new building. It's being delayed. They've made -- they've asked us to extend the lease for a bit. We're keeping our options open because there's significant interest from other government department and major public companies in that building. So we're very confident with Townsville and obviously, there was a lot of promises made in the election, and those promises mean more tenants, and we've got a very good building there.

So just quickly on the funds management business. You can read all what's happened there. We are in due diligence for $100 million acquisition. We're delighted to find this acquisition. We're doing the due diligence, and we hope to launch a fund in the next month or so and -- but we are doing (inaudible). It's not over yet. And if it ticks all the boxes for GDI, we'll have a fund which will be in significantly higher demand.

So David, do you want to have a check at that in relation to any numbers or anything?

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David John Williams, GDI Property Group - Joint Company Secretary & CFO [5]

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No...

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Steven Neville Gillard, GDI Property Group - MD & Director [6]

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But look, I think I'll -- just in relation to the distribution policy, we will be maintaining anticipation of $0.0775 for this year. So look, rather than reading through numbers and all that, the presentation is there for all to read. And we will be having a number of meetings. But I will pass it over to -- are there any questions from the -- from anyone on the phone here?

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Questions and Answers

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Operator [1]

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(Operator Instructions) There is no question at this time. I would now like to hand the conference back to today's presenters. Please continue.

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Steven Neville Gillard, GDI Property Group - MD & Director [2]

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Well, I think that is a complement to our staff that we do have very clear and focused presentations. But anyone who would like to ask a question or will have some meetings with them, and we can talk about the significant upside of the -- we believe the value of our portfolio, you are very welcome. And thank you so much for being a supporter of GDI and being on this floor. Have a lovely afternoon.

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Operator [3]

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Ladies and gentlemen, this conclude today's conference call. Thank you for participating. You may now disconnect.