Growthpoint Properties Limited (JSE: GRT) delivered a 17.6% increase in SA REIT funds from operations and a 5.2% increase in distributable income per share of 76.9 cents for its six-month period to 31 December 2021. Distribution per share was also up 5.1% at 61.5 cents per share. Its total property assets grew by 7.7% to R164.4bn. The Growthpoint share price remains significantly undervalued compared to its SA REIT net asset value of 2,148 cents per share, which increased by 6.2%.
Growthpoint continued to reinforce its liquidity and balance sheet strength to enhance its ability to achieve its strategic internationalisation, South African portfolio optimisation, and ambitions to create new income streams. It decreased its group SA REIT loan-to-value (LTV) from 40.0% to 39.2% and increased its ICR to 3.0-times from 2.9-times. In line with an 80% payout ratio, Growthpoint retained R524.6m before tax, ending the period with R515.8m cash on the SA balance sheet and R6.2bn of unused RSA committed facilities.
Norbert Sasse, Group CEO of Growthpoint Properties, attributes the solid performance to increased contributions from the V&A Waterfront and ASX-listed Growthpoint Properties Australia (GOZ) and improved SA finance costs, mainly from Growthpoint’s November 2020 equity raise.
Sasse comments, “These pleasing half-year results show the stability of our business. We are seeing encouraging signs of improvement, although it is too early to say that we have turned a corner while the environment remains uncertain and SA property fundamentals weak.”
Growthpoint creates space to thrive with innovative and sustainable property solutions in environmentally friendly buildings while improving the social and material wellbeing of individuals and communities. It is an international property company invested in real estate across SA, Africa, Australia, the UK and Eastern Europe. It is the largest SA primary listed REIT, a FTSE/JSE Top 40 Index company, a constituent of the FTSE EPRA/NAREIT Emerging Index, and a long-standing inclusion in the FTSE4Good Emerging Index and the FTSE/JSE Responsible Index. During the period, Growthpoint achieved a Level One B-BBEE rating.
Growthpoint’s international investments represent 43.1% of property assets by book value and 28.0% of earnings before interest and tax. It owns 57 office and industrial properties in Australia valued at R58.5bn through a 62.2% holding in GOZ. Through its 29.4% investment in LSE AIM-listed Globalworth Real Estate Investments (GWI), Growthpoint owns an interest in 66 office and light industrial properties valued at R57.3bn in Romania and Poland, with Growthpoint’s share valued at R16.9bn. It owns seven community shopping centres in the UK valued at R11.3bn through its 60.8% investment in LSE- and JSE-listed UK REIT Capital & Regional (C&R).
GOZ’s dividend of AUD10.4 cents per share (R527.0m) increased from the prior half-year of AUD10.0 cents per share (R494.7m) while withholding tax decreased from 11% to 10%. Its balance sheet strength reflects in its low gearing level of 29.4%, AUD315.0m of undrawn debt lines, and new and refinanced facilities secured at the lowest pricing in its history.
The Australian portfolio’s value increased by 11.1% in the six months. Its net tangible assets per share increased by 9.1% to AUD4.55 driven by leasing success, yield compression and rent growth across the portfolio. All its portfolio metrics are equally impressive: it is 98.8% occupied with quality tenants and achieved a 93.0% tenant retention rate. Continuing its growth, GOZ acquired three high-quality office assets for AUD261.1m in the period and maintained its 15% in DXI by investing a further AUD60.3m.
“GOZ continued its sterling performance as a core investment for Growthpoint. It upgraded its FY22 guidance from 20.6cps to 20.8cps, with a target payout ratio of 75% to 85%, and is seeking access to acquisition, funds management and merger and acquisition opportunities,” says Sasse.
Mainly due to high levels of cash on its balance sheet – EUR418.7m and EUR215.0m in an undrawn facility – notwithstanding conservative gearing of 40.1%, distributions from Globalworth of EUR13cps were down by 13.3% compared to the EUR15cps for HY21. The period saw Globalworth focusing its capital on improving its tenant spaces and growing through low-risk acquisitions and developments. It has five light logistics facilities of a combined 98,900sqm under development in Romania and is refurbishing two mixed-use properties of 75,000sqm in Poland. Globalworth has an 11.5% vacancy rate and let more than 91,000sqm in the six months. Its portfolio collections improved to 99% for 2021.
“Globalworth’s portfolio metrics continue to outperform those of our SA portfolio. With strong demand from multinational tenants and limited retail exposure, it was relatively unaffected by the pandemic. Its balance sheet is strong, but its large cash holding continues to dilute earnings, and we are seeking ways to maximise this investment,” notes Sasse.
C&R undertook a £30.0m equity raise which was fully underwritten by Growthpoint, resulting in an additional investment by Growthpoint of £23.7m (R480.0m). Its successful recapitalisation and debt restructure, together with two properties being classified as managed and not owned, reduced LTV from 72% to 49%. C&R has high cash reserves of GBP58.5m, and its property valuations for owned assets of GBP380.1m stabilised during the period. C&R plans to resume dividend payments from the second half of 2022 in line with its previous dividend policy to distribute at least 90% of EPRA earnings.
“C&R is in a stronger financial position with healthy portfolio metrics including good occupancy, solid letting, and robust income. The retail property sector is showing a promising pick-up in investment activity with signs that market values in the UK have stabilised. We continue to believe in this platform, its management and its ‘needs-based’ community retail strategy,” Sasse says.
Growthpoint owns and manages a diversified core portfolio of 407 retail, office, and industrial properties across SA valued at R64.7bn. This portfolio recorded a further 0.4% devaluation, indicating a possible stabilisation in Growthpoint’s SA property values. It manages these assets to optimise their value over the long term but also seeks to sell non-core assets and recycle this capital. It sold 19 properties for R1.0bn during the period, taking the total of properties it has sold in SA to R8.6bn since 2017.
The SA portfolio delivered a decreased contribution to results. Vacancies in the SA portfolio reduced from 11.6% to 10.5% over the six months, with more than 758,600sqm let during the period. Its renewal success rate improved from 65.4% to 77.3% during the period, but this was achieved at the expense of rental growth. Rental renewal rates decreased by -0.2% to -15.1% but started to show some stability. Growthpoint has collected 92.4%, or R181.0m, of all Covid-19 rental deferrals granted to tenants. It achieved 100% collections for the period and improved arrears.
Its retail portfolio vacancies improved to 3.8% excluding offices, with increased letting activity from national retailers. During the period, retailers continued to restructure their portfolios, right-size their spaces and rebase rentals. Growthpoint’s portfolio enjoyed improved renewal success, albeit at the expense of rental growth and annual escalation levels. Its shopping centres saw a 7.0% increase in average trading density, with smaller community and convenience centres leading the rebound, value retail holding favour and shopper basket size has increased as turnovers have recovered faster than foot count levels.
Office vacancies appear to be levelling off in the Growthpoint portfolio, with more tenants returning to the office and hybrid working arrangements proving more sustainable than work-from-home. Enquiries for office space increased and tenants were willing to trade up for space in more efficient, sustainable buildings. Office vacancies stand at 21.2%, which puts renewal rates, rentals and escalations under pressure. However, arrears steadily improved.
Vacancies in Growthpoint’s industrial portfolio improved by 2.9% to 6.5%, with good letting in the Western Cape and KwaZulu-Natal, where vacancies are below 1%. Renewal success rates increased more than 20% to 83.3% on more positive sentiment, but rental growth and escalations remain under pressure. The portfolio’s performance benefitted from better letting and cost control and reduced arrears. Taking advantage of market demand, Growthpoint disposed of nine non-core industrial properties. Another 20 industrial properties are in various stages of disposal.
Growthpoint’s cross-sector development expertise creates opportunities to generate profits and supports Growthpoint’s disposal strategy by unlocking the best value from its non-strategic assets. The contribution to distributable income from trading and development was R76.0m for the half-year. Growthpoint invested R480.5m in development and capex in SA and has R425.8m of capital commitments.
Growthpoint’s ongoing investment in solar energy and green buildings reduces carbon emissions, creates energy and water efficiency, lowers tenant costs and ensures continuity of power supply. The company has set an ambitious target for all its 400-plus SA buildings to be carbon neutral by 2050. Growthpoint started investing in green buildings and solar energy over a decade ago. It has 12.3MW of renewable energy generation capacity installed at its properties, which it aims to grow to 46MW in the next five years.
“Our SA business is well positioned with a strong balance sheet, which is critical considering the global volatility, geopolitical tensions and weak macro-environment placing ongoing pressure on domestic property fundamentals. With poor economic growth in SA, still below pre-Covid levels, our local growth prospects remain constrained,” says Sasse.
Growthpoint’s 50% interest in the iconic V&A Waterfront, Cape Town, with its share of property assets valued at R8.9bn, improved its earnings significantly with a 62.0% increase in net property income for the period. The V&A won its rates appeal and the City of Cape Town adjusted its municipal valuation by R6.9bn, resulting in tenant refunds of R77.5m dating back to July 2019, and contributing R28.5m to the V&A’s profit. Collections are currently some 98% of billings and were 93.6% on average for the six months.
With its quality portfolio and sound property fundaments, the V&A has been a star-performer for Growthpoint after being hard-hit by the Covid-19 travel bans and restrictions. The period’s partial resumption of international tourism led to a long-awaited rebound. 2021 visitor numbers were up 9.5%, leading to a recovery in retail sales and reduced Covid-19 relief, except for international tourist-dependent tenants. Luxury goods saw robust sales and restaurants showed encouraging improvements. Retail vacancy levels were a low 1.7%.
Office vacancies at the V&A remained low at 2.7%, with good demand for new space and 65% of the portfolio let to blue-chip tenants. Construction began on the 10,500sqm multi-tenanted office building in the Canal District anchored by Investec Bank in 6,900sqm. In the marine and industrial sector, the fishing industry traded as normal and there was a strong showing from the casual shipping, superyachts and yachting sectors. The cruise terminal was closed and reopened in 2022.
Highly dependent on international tourism, the V&A’s hotels operated at 50% of pre-Covid levels during the period. International passengers coming through Cape Town’s airport had only recovered to 27% of normal levels by the end of 2021. This has improved to 45%, signifying more room for recovery which will continue to enhance the V&A’s performance. Residential vacancies of some 30%, now decreased to around 20%, resulted from an oversupply of residential stock in the area.
“The strong recovery of the V&A Waterfront, although hampered by the disappointing reaction to the omicron variant which isolated SA from international tourism in December, has the potential to continue as more foreign tourists, conferences and convention events return,” says Sasse.
Growthpoint Investment Partners (formerly the funds management business) delivers its growth strategy to diversify Growthpoint’s assets further with capital-efficient alternative real estate co-investments. It now has three unlisted co-investments and R15.0bn assets under management.
Growthpoint Healthcare REIT has raised over R1.3bn of third-party funding and Growthpoint has an effective 55.9% shareholding. SA’s first unlisted healthcare REIT has a R3.4bn portfolio of seven assets and a R5bn pipeline of acquisitions and developments. It concluded a USD80m equity and convertible debt package with International Finance Corporation and acquired the specialist Cintocare Hospital in Pretoria. Growthpoint Healthcare REIT delivered interim distribution per share growth of 7.5%, and Growthpoint received R67.3m in distributions and R19.4m in property and asset management fees.
Lango Real Estate owns 11 income-generating commercial properties valued at USD601.0m in Ghana, Nigeria and Zambia. Lango has raised some USD320m third-party funding, including Growthpoint’s 16.3% shareholding through a USD50m co-investment. Lango is currently in a capital raising period, which it intends to use mainly to acquire a pipeline of assets, particularly in Nairobi, Kenya. Contribution to distributable income amounted to R16.6m.
Growthpoint Student Accommodation REIT launched in December 2021 with seven assets of 4 979 beds valued at R2bn, and a significant growth pipeline. Growthpoint has a 16.8% investment in SA’s first unlisted purpose-built student accommodation REIT, which has raised R1.4bn in equity, including Growthpoint’s co-investment of R240.0m. Growthpoint earned distributions of R11.3m and asset management fees of R2.1m from Growthpoint Student Accommodation REIT.
“Growthpoint Investment Partners is strategic for our future growth. We remain focused on expanding the scale and number of our alternative co-investments that are distinct from Growthpoint’s core assets in the retail, office and industrial sectors,” says Sasse.
Growthpoint’s good liquidity, balance sheet strength, and conservative management approach delivered stable and encouraging results for the six months.
“Growthpoint is cautiously optimistic about the increased stability and potential for improvement. We are ready to optimise the advantages we have created for our business and advance our strategic priorities to achieve sustainable performance for all our stakeholders,” says Sasse.