Growthpoint outperforms forecast to deliver 7,2% half-year distribution growth

Growthpoint Properties Limited today announced a 7.2% growth in distributions, to 72,7 cents per linked unit, for the six-month interim period to 31 December 2012. The distribution growth is significantly ahead of original market guidance of 6.1%.

CEO of Growthpoint Properties Norbert Sasse attributes this outperformance to growing revenue from Growthpoint’s South African property assets and favourable conditions which boosted the distribution enhancing performance of its investment in Growthpoint Properties Australia (GOZ).

“We’re pleased to report positive results which exceed original guidance,” says Sasse. Growthpoint distributions are based on sustainable rental income. It doesn’t distribute capital profits.

Sasse says this heightened distribution growth should continue. Last week Growthpoint revised its expected growth in distributions to between 7.0% and 7.5% for the full year to 30 June 2013.

He adds Growthpoint will also list as a REIT at the start of the company’s financial year on 1 July 2013, adopting this international standard with a structure that provides tax certainty.

The largest South African listed property company, Growthpoint Properties is included on the JSE ALSI 40 Index. It owns and manages income-producing commercial property and has three major contributors to revenue and profits: a quality portfolio of 390 directly owned properties in South Africa valued at R35,9 billion; a 50.0% interest in the V&A Waterfront in Cape Town with properties valued at R5,1 billion; and a 65.3% interest in GOZ which owns 43 properties across Australia valued at R14,8 billion.

Growthpoint’s market capitalisation was R43,3 billion at December 2012, its net asset value (NAV) was up 4.0% at 1,677 cents per linked unit and its total annualised return to investors was 19.4%.

“Growthpoint notched up a pleasing 14.9% increase in revenue,” says Sasse. “This mostly comes from contractual rental escalations and an increase in revenue of 46.5% from GOZ as a result of its property acquisitions.”

During the half-year Growthpoint’s investment properties increased in value by R859,4 million, to R55,7 billion including its 50% share in the V&A Waterfront. It closed the period with total tangible assets of R57,4 billion. Supporting the growth of its portfolio, Growthpoint has a development pipeline of R1,2 billion.

It’s ratio of property expenses to revenue improved from 21.9% to 21.0%, spurred by keen cost and management controls from its directly owned South African portfolio in particular, which delivered a 0.4% improvement in its ratio of 23.9%.

Growthpoint’s loan-to-value ratio stayed largely unchanged at 36.6%. Its unsecured debt increased to 41.7% of total debt mostly due to a R500 million five-year corporate bond issue. “Growthpoint continues to enjoy good access to liquidity from both bond and bank markets,” says Sasse.

Helping to keep gearing at conservative levels was the R613,1 million cash retained from equity raised via Growthpoint’s Distribution Re-Investment Plan, supported by 59.4% of its linked unitholders in September 2012.

Growthpoint was included in the JSE’s Socially Responsible Investment Index (SRI Index) for the fourth consecutive year in December 2012. In the same month Growthpoint also became one of only 12 companies on the JSE 100 Carbon Disclosure Leadership Index.

Growthpoint’s South African directly owned portfolio, which represents 64.3% of Growthpoint’s total asset value, is well diversified across office, retail and industrial properties. It delivered solid performance during the half year with occupancy levels of 95.9% at 31 December 2012, despite a tough economic context, particularly for the office sector.

“This portfolio achieved like-for-like net income growth of 7.6%, which is robust in present economic conditions. Increased occupancies and normal rental escalations were supported by aggressive leasing, innovative tenant retention strategies and exacting cost controls,” says Sasse.

Arrears in the local portfolio at R48,0 million remained largely unchanged compared to the same time last year. Supporting keen leasing and tenant retention drives, Growthpoint launched the UNdeposit in November 2012. This ground-breaking deposit-free lease received excellent traction. “Growthpoint had released in excess of R10 million in deposits to its South African customers by the end of February 2013 just four months after launching this product,” confirms Sasse.

“Portfolio-enhancing acquisitions, disposing non-strategic properties and unlocking value using development and redevelopment also helped improve performance from this portfolio,” says Sasse.

During the period, in its South African directly owned portfolio, Growthpoint sold 13 buildings for R381,8 million, a profit of R128,5 million on cost. It invested R412,3 million on developing, expanding and improving properties. A further R722,4 million is committed for projects. Growing this portfolio with quality acquisitions, Growthpoint has also committed to buy two office buildings: Menlyn Corner, Pretoria and Deloitte & Touche, Durban for R213,0 million and R113, 4 million respectively.

Pursuing portfolio enhancing growth opportunities, Growthpoint submitted a revised offer to the Board of Fountainhead Property Trust (Fountainhead) on 21 February 2013. It increased its previous offer of 35 Growthpoint linked units for every 100 Fountainhead participatory interests, to 37 Growthpoint linked units for every 100 Fountainhead participatory interests, an increase of 5.7% on the day it made its announcement. Growthpoint’s increased offer represents a 13% premium to the previous day’s closing price of Fountainhead units and a 21% premium to the price per Fountainhead unit prior to Growthpoint making its initial bid for the assets of Fountainhead. Growthpoint’s increased offer further represents a 9% premium to the offer by Redefine Properties for the same assets.

Growthpoint’s 50% stake in the V&A Waterfront contributed 7% to consolidated EBIT (earnings before interest and taxes). Excellent occupancy levels at the V&A Waterfront improved from 98.4%, ending the period at 99.1%.

“The V&A Waterfront is benefiting from constant fine-tuning. It now has a top-notch new Food Court and continues to attract the best local and international retail brands like Zara, Moyo and TopShop,” says Sasse. “There’s a slight improvement in performance from the hotel portfolio, suggesting the market has bottomed out and is likely to improve.”

During the half-year the V&A Waterfront invested R256,0 million on development, mostly for the 18,100sqm Allan Gray head office as well as related retail and parking. It has assigned a further R245,2 to this development. Growthpoint has a 50% effective share of this development.

Growthpoint investors benefited from a 31.1% annualised return on its R3,2 billion Australian investment. A weaker ZAR against the AUD favoured Growthpoint’s distributions per linked unit from GOZ, which grew by 12.3% on a “like-for-like” comparable basis. “GOZ delivered great performance for Growthpoint’s investors and contributed 24% to consolidated EBIT. We increased our investment by R179.4 million in the period through GOZ’s Distribution Re-Investment Plan,” says Sasse.

Occupancy levels remained largely unchanged at 99.2% in the GOZ portfolio, despite its notable growth with two acquisitions and two developments for a combined R1,1 billion.

“We will continue to grow and nurture a diversified portfolio of quality investment properties to deliver sustainable income distributions and capital appreciation to our investors,” says Sasse.

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