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GROWTHPOINT PROPERTIES AUSTRALIA

RESEARCH NOTE

Sound result, defensive REIT


Investment Summary
GOZ reported an operating profit of $15.8m for the 1H11, up 80% pcp and in line with our forecast. This was a result of the acquisitions made during the year. Underlying NPAT was also 63% higher, this being a product more of the dilution in 1H10 from the recapitalization. Like-for-Like rental growth was 1.9%. Management have reaffirmed their 17.1c DPS guidance for FY11. Asset values held firm with a portfolio cap rate of 8.6%. The NTA was unchanged at $2.03. GOZ has a sound debt position. The trusts syndicated debt facility of $558 million with National Australia Bank and Westpac extends to 30 June 2012. Hedging is high and there are no major margin increases pending. While gearing is reasonably high post the 2009 restructure GOZ is now well within its banking covenants. Our view remains unchanged. GOZ remains a solid defensive yield play given its long leases and domestic focus. The new management has done a sterling job of increasing investor value and growing the trust while still being disciplined. While the trust still lacks liquidity things are moving in the right direction and we have no doubt that GOZ will become larger and more liquid in the not to distant future. Following this result we have lifted our price target from $1.99 to $2.03 in line with the NTA. As a result we maintain our BUY recommendation. 22 February 2011 12mth Rating
Price Target Price 12m Total Return RIC: GOZ.AX Shares o/s Free Float Market Cap. Net Debt (Cash) Net Debt/Equity 3m Av. D. Tover 52wk High/Low 2yr adj. beta A$ A$ %

BUY
1.91 2.03 13.6 BBG: GOZ AU 212.8 50.0 406.4 399.9 123.4 0.05 2.04/1.67 1.14

m % A$m A$m % A$m A$

Valuation:
Methodology Value per share A$ NAV 2.03

Analyst: Phone: Email:

Jonathan Kriska (+61 2) 8238 6245 jkriska@psl.com.au

Year End June 30 Reported NPAT ($m) Recurrent NPAT ($m) Recurrent EPU (cents) EPU Growth (%) PER (x) EBITDA ($m) EV/EBITDA (x) Free Cashflow FCFPS (cents) PFCF (x) DPS (cents) Yield (%)

2009A (210.1) 14.9 43.1 (18.4) 4.4 61.6 9.2 18.7 54.1 3.5 32.5 17.0

2010A 46.7 22.5 16.6 (61.5) 11.5 65.4 10.1 22.4 16.6 11.5 14.0 7.3

2011F 43.5 34.5 17.3 4.2 11.0 81.1 11.0 36.7 18.4 10.4 17.1 9.0

2012F 38.4 38.4 18.1 4.5 10.6 80.7 11.4 37.6 17.7 10.8 18.1 9.5

2013F 12 Month Share Price Performance 40.5 40.5 19.0 5.4 10.0 82.8 11.1 39.7 18.7 10.2 19.0 10.0

$2.50 $2.00 Share Price ($) $1.50 $1.00 $0.50 $0.00 12 Months

16 14 12 10 8 6 4 2 0
Volume (million)
1

Performance %
Absolute Rel. S&P/ASX 300
RESEARCH NOTE PATERSONS SECURITIES LIMITED

1mth
-3.1 -5.6

3mth
-1.0 -0.7

12mth
12.6 15.0

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.

22 February 2011

Growthpoint Properties Australia

Highlights
Solid result and in-line
GOZ reported an underlying NPAT of $15.8m for FY10, 80% higher than the previous year. This was in line with our estimates and the result of the acquisitions made during the period. Like-for-Like rental growth was 1.9%. Adjusted EPS was up +63% and DPS was up +53%. The current payout ratio is 100%. While these numbers are quite large, they are generally a product of the restructuring that occurred in GOZ in 1H10 and which led to a very low eps number in that period.

Guidance
Directors reaffirm guidance of 17.1c DPS for FY11.

Figure 1: Performance
$millions NOI Growth NPAT Reported NPAT Adjusted EPS Adjusted Weighted average no. shares DPS
Source: Patersons

1H10 11% 33.2 8.7 5.16 170m 5.5

1H11 22% 24.8 15.8 8.41 188m 8.4

Change

-25% 80% 63%

53%

Raising and Portfolio Acquisition Completed


During the period GOZ successfully completed a $101 million rights Offer at $1.90 which was used to partially fund a portfolio of 7 Queensland properties, comprising 2 office buildings, a car park and 4 industrial properties for a total price of $171.5 million. The transaction changed GOZ from being 100% industrial focused to being a multi-sector owner of property and was in keeping with earlier announcements about broadening the investment mandate. The associated increase in market cap gets GOZ closer to both index inclusion and consideration by institutions. While some dilution was expected given the issue price to NTA, the level of dilution was moderate and shows the discipline of management.

Figure 2: Change in portfolio allocation

Source: GOZ

RESEARCH NOTE PATERSONS SECURITIES LIMITED

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.

22 February 2011

Growthpoint Properties Australia

Valuations hold firm


Of the 33 investment properties owned by the Group at balance date, 29 properties were independently revalued during the Half Year. The weighted average capitalisation rate (WACR) for the property portfolio, by last valuation, is 8.5%. This compares to the WACR as at 30 June 2010 of 8.6%. The NTA was stable at $2.03.

Figure 3: Portfolio Cap Rate


Cap Rates
9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 1H08 2H08 1H09 2H09 1H10 2H10 1H11

Source: Patersons

GOZ is very defensive


GOZ has some characteristics which make it one of the most defensive REITs in the sector. 100% domestic focus 100% occupancy Very long WALE of 9.1 yrs with no near term expirees High quality mix of tenants. Leases are mostly fixed on 3.5-4.0% increases p.a. Solid debt position (see next section)

Figure 4: Lease Expiry Profile

Figure 5: Main tenants

Source: GOZ

Source: GOZ

RESEARCH NOTE PATERSONS SECURITIES LIMITED

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.

22 February 2011

Growthpoint Properties Australia

Sound Debt position


GOZs debt position is sound. The trusts syndicated debt facility of $558 million with National Australia Bank and Westpac extends to 30 June 2012. Hedging is high and there are no major margin increases pending. While gearing is reasonably high post the 2009 restructure GOZ is now well within its banking covenants.

Figure 6: Debt Facilities


Type Tranche A Tranche B Upsizing TOTAL Drawn 474,750 73,569 548,319 Limit Available 480,000 5,250 78,000 4,431 22,000 22,000 580,000 31,681 Maturity Jun-12 Jun-12 Jun-12 Margin 2.20% 2.20% 2.20%

Figure 7: Interest Rate Hedging


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 %Hedged Hedge Rate (incl margin) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

Source: Patersons

Source: Patersons

RESEARCH NOTE PATERSONS SECURITIES LIMITED

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.

22 February 2011

Growthpoint Properties Australia

Growthpoint Properties Australia (GOZ) Cash Flow ($m) 2010A 2011A Operating Cashflow 22.6 37.5 Capex -0.1 -0.8 Disposals 0.0 13.2 Acquisitions -85.4 -232.5 Other 0.0 0.0 Investing Cashflow -85.5 -220.1 Equity Raised 183.1 99.8 Increase (Repay) Debt -99.0 129.8 Distributions Paid -11.4 -31.4 Other 0.0 0.0 Financing Cashflow 72.7 198.1 Net change in Cash Held 9.7 15.6 Closing Cash Balance 16.7 32.3 Op CF/Dividend (%) 50.3 83.8 Dividends (Cents) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 FY08 Valuation NAV Current Cap rate Assumed Cap rate FY09 FY10 FY11

2012A 38.4 -0.8 0.0 0.0 0.0 -0.8 0.0 0.0 -37.7 0.0 -37.7 -0.1 32.3 98.2

$1.91 2013A 40.5 -0.8 0.0 0.0 0.0 -0.8 0.0 0.0 -39.5 0.0 -39.5 0.2 32.5 97.5

Profit & Loss ($m) Property NOI Other Income Expenses EBITDA Depn & Ammort EBIT Net Interest Asset Sales Unrealised gains Profit Before Tax Tax expense Minority Interests NPAT (Reported) NPAT (Adjusted) Balance Sheet ($m) Assets Cash Receivables Investment Properties Other Investments Associates Derivatives Other Assets Total Assets Liabilities Interest Bearing Liabilities Derivatives Other liabilities Total Liabilities Minority Interests Shareholders Funds EPS/DPS EPU (Reported) EPU (Adjusted) EPS growth (%) DPS AFFO DPS growth (%) Payout Ratio (%) Distribution Yield (%) Ratios Profitability NOI Growth (%) NPAT Growth (%) ROA (%) ROE (%) Tax Rate (%) Market Performance Price/Earnings (x) EV/EBITDA (x) Price/NTA (%) Balance Sheet Net Debt/Equity (%) Net Debt/Assets (%) Interest Cover (x) NTA ($/share)

2010A 68.3 0.0 -2.9 65.4 0.0 65.4 -34.0 0.0 15.2 46.7 0.0 0.0 46.7 22.5 2010A 16.7 1.1 728.8 0.0 0.0 0.0 28.2 774.8

2011F 84.7 0.0 -3.6 81.1 0.0 81.1 -41.1 0.0 3.5 43.5 0.0 0.0 43.5 34.5 2011F 32.3 1.7 931.8 0.0 0.0 0.0 47.0 1012.8

2012F 84.5 0.0 -3.8 80.7 0.0 80.7 -42.2 0.0 0.0 38.4 0.0 0.0 38.4 38.4 2012F 32.3 1.7 932.6 0.0 0.0 0.0 47.0 1013.5

2013F 86.8 0.0 -4.0 82.8 0.0 82.8 -42.3 0.0 0.0 40.5 0.0 0.0 40.5 40.5 2013F 32.5 1.7 933.4 0.0 0.0 0.0 47.0 1014.5

FY12

416.6 14.6 19.6 450.8 0.0 324.0 2010A 34.5 16.6 -61.5 14.0 16.6 -56.9 84.3 7.3 2010A 6.3 50.9 2.9 6.9 0.0

546.7 7.3 25.1 579.2 0.0 433.6 2011F 21.8 17.3 4.2 17.1 18.4 22.1 98.9 9.0 2011F 23.9 53.6 3.4 8.0 0.0

546.7 7.3 25.1 579.2 0.0 434.3 2012F 18.1 18.1 4.5 18.1 17.7 5.7 100.0 9.5 2012F -0.2 11.4 3.8 8.9 0.0

546.7 7.3 25.1 579.2 0.0 435.3 2013F 19.0 19.0 5.4 19.0 18.7 5.4 100.0 10.0 2013F 2.8 5.4 4.0 9.3 0.0

8.3% 8.3%

DCF Beta WACC

0.90 9.0%

Valuation: $ 2.04 Val'n: $ Overview Growthpoint Properties Australia (GOZ) is a REIT focused on domestic commercial property with earnings only from passive rental income. Management is internalised. Board of Directors Lyndsay Shaddock Tim Collyer Norbert Sasse David Spruell Grant Jackson Francois Marais Estienne de Klerk

2.35

Chairman Managing Director Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Executive Director

Substantial Shareholders Growthpoint SA Emira Property Fund SA

% 67.0% 9.1%

11.5 10.8 -5.9

11.0 11.4 -6.3

10.6 11.4 -6.4

10.0 11.1 -6.6

Subtotal

76.1%

123.4 51.6 1.9 2.03

118.6 50.8 2.0 2.04

118.5 50.8 1.9 2.04

118.1 50.7 2.0 2.05

RESEARCH NOTE PATERSONS SECURITIES LIMITED

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.

22 February 2011

Growthpoint Properties Australia

Recommendation History
$2.50 $2.00 Share Price ($) $1.50 $1.00 $0.50 $0.00 12 Months

16 14 B B 12 10 8 6 4 2 0
Volume (million)

Date 18 Feb 10 17 Aug 10

Type Research Note Research Note Current Share Price

Target Price Share Price Recommendation 2.06 1.99 1.99 1.67 1.91 1.93 1.92 B B B

Return 14.4% 1.0% -0.5%

06 Dec 10 Event Impact Email

Stock recommendations: Investment ratings are a function of Patersons expectation of total return (forecast price appreciation plus dividend yield) within the next 12 months. The investment ratings are Buy (expected total return of 10% or more), Hold (-10% to +10% total return) and Sell (> 10% negative total return). In addition we have a Speculative Buy rating covering higher risk stocks that may not be of investment grade due to low market capitalisation, high debt levels, or significant risks in the business model. Investment ratings are determined at the time of initiation of coverage, or a change in target price. At other times the expected total return may fall outside of these ranges because of price movements and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. This Document is not to be passed on to any third party without our prior written consent.

RESEARCH NOTE PATERSONS SECURITIES LIMITED

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.

22 February 2011

Growthpoint Properties Australia

RESEARCH NOTE PATERSONS SECURITIES LIMITED

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any account whatsoever on the part of this firm or any member or employee thereof.