Property Flash


Norbert Sasse, the group chief executive officer (CEO) of SA’s largest real estate company, Growthpoint Properties, said on Wednesday September 14 2022, that listed property was offering “the most value just about ever in its history”, in South Africa and abroad. This was as property funds traded at steep discounts to net asset value (NAV).

His sentiments were echoed by Growthpoint’s SA CEO Estienne de Klerk.

Property funds had owned commercial properties which had lost large degrees of their value amid a wave of economic and social shocks. These included the likes of Brexit where the UK exited the European Union, the Covid-19 pandemic and Russia’s war on Ukraine. Sasse said listed property funds’ share prices were poised to recover along with the value of their properties, in the future.

“The world’s currently in a very uncertain place, but things normalise through cycles and over time. If we look at commercial property, it’s offering heaps of value. Globally, property funds are trading at a 40% discount to net asset value (NAV) on average. It seems it has never before been a better time to invest in our industry,” Sasse said.

He spoke to media following the release of financial statements for the year to end-June 2022, during which the group’s assets grew to R160.8bn, 5.2% higher than the year before. The company delivered a 13.9% increase in South African real estate investment trust (Reit) funds from operations (FFO) of R5.3bn and a 5.1% increase in distributable income per share (DIPS) of 155.6 cents. The company’s total dividend per share (DPS) rose 8.4% to 128.4 cents per share.

Growthpoint’s strong performance post the pandemic showed the defensive qualities of the group. There was a rapid rebound in the performance of the V&A Waterfront and a very strong performance from Australian stock exchange-listed Growthpoint Properties Australia (GOZ). There were also improved South African finance costs and steadily growing contributions from Growthpoint Investment Partners, which is the group’s fund management business.

“GOZ had its best year on record which is really pleasing. Our improved results, group-wide, show the resilience and stability of our business, and the benefits of diversification and quality earnings during yet another incredibly tough year,” Sasse said.

“GOZ delivered its best performance yet for Growthpoint and remains a core investment. It is in a great position and has provided financial year 2023 DPS guidance of A$21.4 cents per share and FFO per share range of A$25 to A$26 cents per share, which is a bit lower than the highs of this year,” said Sasse.

Sasse stressed that Growthpoint’s share price remained significantly undervalued compared with its SA Reit NAV of R21.58 per share, which grew 6.7%. Growthpoint’s share price closed at R13.01 on Wednesday.

Growthpoint has investments in real estate across SA, Africa, Australia, Poland, Romania and the UK, and is the largest SA primary listed Reit with a market capitalisation of R45bn. It is a FTSE/JSE Top 40 Index company, a constituent of the FTSE EPRA/NAREIT Emerging Index, and also has a long-standing inclusion in the FTSE4 Good Emerging Index and the FTSE/JSE Responsible Index.

During the reporting period, Growthpoint improved its liquidity and balance sheet strength. It decreased its group SA Reit loan-to-value (LTV) from 40% to 37.9%. In line with its improved performance, Growthpoint adopted a higher 82.5% dividend payout ratio, retaining R935m before tax to fund capital expenditure and developments. It ended the period with R1.5bn cash on its South African balance sheet and R10.3bn of unused South African committed debt facilities.

Growthpoint’s international investments represent 43.5% of property assets by book value and 28.4% of earnings before interest and tax, and its newly devised targets are 50% and 40% respectively. The hard currency dividend income from its international investments increased from R1.4bn to R1.5bn in the reporting period.

Sasse said it was notable that the company’s SA office vacancies had leveled off, falling from a 22.4% peak on March 31 2022 to 20.7% at year end. More tenants were returning to offices with a hybrid working model and smaller users that previously gave up space were also returning. Renewal success improved from 52.5% to 58% in a market where tenants continued to consolidate and reduce space.

Reflecting the weak economic environment, although both improved, office property values and like-for-like net property income decreased by 5.4% and 8.7% respectively. To shift Growthpoint’s office exposure to higher-performing regions, nine office properties were sold, Sasse said.

Growthpoint Properties’ 50% interest in the most highly valued commercial asset in Africa, the V&A Waterfront, Cape Town, with its share of property assets there valued at R9bn, improved its earnings significantly to deliver exceptional performance with a 52% increase in net property income.

After being hard-hit by the Covid-19 travel bans and restrictions, international tourist arrivals at Cape Town International Airport have also recovered to 75% of pre-pandemic levels by end-June 2022 and led to the V&A’s long-awaited rebound. Its visitor numbers were up 32.3% during the 12 months. They were currently 20% below pre-Covid levels, signifying more room for recovery. All V&A hotels were open were operating at 81% of pre-Covid occupancy levels with the Silo Hotel and Radisson Red exceeding these levels.

In the quarter to June 2022, retail sales at the V&A Waterfront recovered to 14% above pre-Covid levels, with retail vacancies below 1% and good demand for space, although rental levels have reverted slightly, de Klerk explained.

He said that well-managed property funds offered long-term returns for investors and was optimistic that the investment community would invest more deeply in commercial property.

Growthpoint’s diversified portfolio, strong balance sheet and stable hard currency dividend income streams positioned it defensively for the 2023 financial year.

However, given the high level of uncertainty in the local and global macroeconomic environment, coupled with rising interest rates and inflation, its team expected muted distributable income per share growth for that period.

Picture: Norbert Sasse, group CEO of Growthpoint Properties (GRT), supplied by Growthpoint Properties

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