March 17 2023
South Africa’s energy crisis is dire, costing companies millions of rand as they try to operate through loadshedding. Among these is Growthpoint Properties, the largest real estate group in the country with a market capitalisation of R45bn and group property assets worth R174.1bn. Growthpoint has invested in South Africa, Romania, Poland, the UK and Australia.
The real estate investment trust (Reit) released financial results for the six months to end-December 2022 on Wednesday March 15. During the reporting period, it spent R47m on diesel to power generators, SA CEO Estienne de Klerk said at a presentation to media.
De Klerk explained that Growthpoint would more than double its renewable energy generation in its retail sites, raising the generation from 13.5 megawatts at peak (MWp) to 27.4 MWp before the end of June, its financial year-end.
Growthpoint needed to be a reliable landlord for its numerous tenants in SA.
“This is a regulatory-induced crisis,” he said.
“Government has prevented the private sector from play in this space,” said de Klerk.
Growthpoint performed fairly well largely thanks to a strong performance from the V&A Waterfront of which the Reit owns 50% and its majority stake in Growthpoint Australia. The V&A Waterfront, which is the most valuable asset in Africa valued at R18.4bn achieved its best ever December in 2022. Record December 2022 retail sales surpassed R1bn, 28% higher than December 2019.
Growthpoint delivered a 4.6% increase in its half-year dividend per share to in half-year dividend per share (DPS) to 64.3c per share and 2.3% growth in its funds from operations (FFO) of R2.7bn for the six month period to end December 2022. Distributable income per share (DIPS) rose 1.3% to 77.9c per share. Group property assets grew 2.0% to R174.1bn and hard currency dividend income increased by 10.1% to R763m.
Norbert Sasse, Group CEO of Growthpoint said there had been improved letting and reduced vacancies in the South African portfolio, and the group’s funds management business, Growthpoint Investment Partners was becoming more attractive to investors.
“Growthpoint’s results achieved during another exceedingly challenging period reflect the strength and diversification of our businesses and the quality of our earnings,” he said.
Growthpoint is a FTSE/JSE Top 40 Index company, a constituent of the FTSE EPRA/NAREIT Emerging Index, and has a long-standing inclusion in the FTSE4Good Emerging Index and the FTSE/JSE Responsible Index.
Growthpoint increased its dividend payout ratio to 82.5% from 80.0% at the prior half year, retaining R472.9m before tax to fund capital expenditure and developments.
Its loan-to-value (LTV) ratio increased slightly to 38.8% mainly because of debt funded acquisitions in Australia. The company ended the period with R1.6bn cash on its SA balance sheet and R10.3bn in SA unused committed debt facilities. This included contingencies for the upcoming maturity of its USD Eurobond of R7.4bn in May 2023, which it will repay with facilities in place.
Growthpoint’s international investments continued to grow incrementally to 43.7% of property assets by book value and 31.0% of earnings before interest and tax. It owns 59 office and industrial properties in Australia valued at R60.5bn through a 62.7% shareholding in GOZ and five community shopping centres in the UK valued at R7.2bn through a 61.5% investment in LSE- and JSE-listed Capital & Regional (C&R). Through a 29.4% investment in LSE AIM-listed Globalworth Real Estate Investments (GWI), Growthpoint owns an interest in 71 office and industrial properties valued at R56.1bn in Romania and Poland. Its effective share is R16.5bn.
GOZ delivered a strong performance with net property income up 19%, driving up Australian fund from operations by 12.5%, to deliver 2.9% distribution growth of AU$10.7cps
“GOZ delivered a fantastic performance to extend its track record of quality asset management, ESG performance and attractive long-term total returns. It has confirmed its financial year 2023 distribution per share guidance of AU$21.4c per share,” said Sasse.
GWI produced a resilient performance even with global challenges affecting its operating markets. It offered a scrip dividend of €0.15cps for its half year to 31 December 2022, equalling R166.6m for Growthpoint, which all major shareholders have committed to take up.
“GWI is showing stable performance with increased inflation underpinning rental increases, although there are some signs of operating metric softness and a slight fall in valuations. We continue to seek solutions to maximise the value of this investment,” said Sasse.
Capital & Regional declared a dividend of £2.75pps, totalling R50.4m for Growthpoint, which will be reinvested. C&R’s LTV ratio remained stable at 41.0%. It disposed of its Blackburn asset for £40m.
Good letting activity in Growthpoint’s SA portfolio reduced vacancies, which returned to single-digit territory, moving from 10.3% to 9.9% in the six month reporting period. Its SA property values increased for the first time since the pandemic, growing 1.4% or R998m to R70.3bn and signifying greater stability and some recovery.
Growthpoint owns and manages a diversified core portfolio of 371 retail, office, and industrial properties across SA. It sold 19 non-strategic properties for R756.3m during the period, making a profit on book value of R7.6m. Growthpoint has sold R10.5bn of properties in South Africa since 2017.
Strong leasing performance in Growthpoint’s industrial property portfolio saw vacancies significantly down in the half year, from 5.7% to 4.3%. Coastal areas outperformed.
The retail property portfolio reflected pleasing performance with good trading density growth of 8.6% and core vacancies at a stable low 3%. While leases continued to revert negatively and rental escalations on renewal remained under pressure in 2022, Growthpoint has been achieving renewal growth and improved lease terms, supporting retail portfolio valuations increasing 1.9%.
More staff returned to offices in line with company policies and with the ongoing effects of loadshedding. B Vacancies of 20.4% showed stabilisation, coming down slightly from 20.7% over the six months.
Growthpoint Investment Partners contributed R48.1m in management fees and R79.0m in dividends to Growthpoint. It continued growing asset under management. Its three funds, added nearly R1bn in assets under management during the period as it grew towards its goal of having R30bn of assets under management by the end of 2027 financial year.
Growthpoint’s diversified portfolio, strong balance sheet and stable hard currency dividend income streams position the company defensively for the rest of the 2023 financial year, de Klerk said.
But he and Sasse warned that, with elevated uncertainty in the local and global macroeconomic environment and rising interest rates and inflation, Growthpoint still expected to deliver muted full-year distributable income per share growth.