Growthpoint Properties has delivered a 4.6% increase in its half-year dividend per share (DPS) to 64.3 cents per share and 2.3% growth in SA REIT funds from operations (FFO) of R2.7 billion for the six-month period ended December 2022.
Distributable income per share (DIPS) was also up 1.3% to 77.9 cents per share with the group’s assets having grown by 2% to R174.1 billion with hard currency dividend income having increased by 10.1% to R763 million.
Attributing this performance to excellent results from the V&A Waterfront and ASX-listed Growthpoint Properties Australia (GOZ), improved letting and reduced vacancies in its SA portfolio, Group CEO, Norbert Sasse says that the results were achieved during another “exceedingly challenging period that reflects the strength and diversification of our businesses and the quality of our earnings.”
The REIT continued to focus on its balance sheet and liquidity positions to execute its three strategic pushes: international expansion, SA portfolio optimisation and growing income streams from Growthpoint Investment Partners’ assets under management.
In line with this performance, the company increased its dividend payout ratio to 82.5% from 80% at the prior half year, retaining R472.9 million before tax to fund capital expenditure and development.
Its SA REIT loan-to-value (LTV) increased to 38.8% mainly due to debt funded acquisitions in Australia, ending the period with R1.6 billion cash on its SA balance sheet and R10.3 billion in SA unused committed debt facilities which includes contingencies for the upcoming maturity of its USD Eurobond of R7.4 billion in May 2023, which it will repay with facilities in place.
Growthpoint’s strategic international investments continued to grow incrementally to 43.7% of property assets by book value and 31% of earnings before interest and tax. It owns 59 office and industrial properties in Australia valued at R60.5 billion through a 62.7% shareholding in GOZ and five community shopping centres in the UK valued at R7.2 billion 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 R56.1 billion in Romania and Poland. Its effective share is R16.5 billion.
GOZ delivered with AUD net property income up by 19%, driving up AUD FFO by 12.5%, to deliver 2.9% distribution growth of AUD10.7 cents per share. Effective withholding tax increased from 10.0% to 14.0%. The balance sheet strength of this core investment for Growthpoint can be seen in its low gearing of 34.5% and AUD357.4 million of undrawn debt.
The GOZ portfolio is 96.7% occupied by a gross lettable area (GLA) with 95% of the portfolio leased to the government, listed and large organisations. GOZ has successfully integrated its recent acquisition of Fortius Fund Management, which introduced AUD1.9 billion of third-party funds under management to GOZ.
“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 FY23 DPS guidance of AUD21.4 cents per share,” says Sasse.
GWI performed even with global challenges affecting its operating markets. It offered a scrip dividend of EUR0.15 cents per share for its half year to 31 December 2022, equaling R166.6 million for Growthpoint, which all major shareholders have committed to take up. GWI sustained good liquidity and remained moderately geared at 42.7%, with EUR625 million of new financing secured and no material debt maturity until March 2025.
It continued its capital focus on logistics facilities in Romania, acquiring a small-unit logistics facility of 7 100m2 and delivering six developments of 104 400m2. It has three new logistics facilities under development totalling 30 000m2. In Poland, it completed refurbishing two mixed-use properties of 74 800m2. GWI achieved good letting and reduced vacancies slightly to 14.4%.
“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,” he notes.
C&R declared a dividend of GBP2.75 pounds per share, totalling R50.4 million for Growthpoint, which will be reinvested. C&R’s reset LTV ratio remained stable at 41%. It disposed of its Blackburn asset for GBP40 million. Valuer’s rental assumptions increased despite valuations declining by 5% on a like-for-like basis because of increases in risk-free rates.
Its community-focused needs-based retail strategy remains relevant and is driving improved operating metrics, including footfalls increasing by 7% compared to 2021. C&R delivered solid letting in the period with 54 leases signed at a 34% premium to previous rentals. Its portfolio is 92.3% let by GLA.
“We continue to believe in this platform, its management and its ‘needs-based’ community retail strategy. C&R is showing pleasing balance sheet stability and operational resilience. As the business continues to evolve, so is its management platform, and it has a clear roadmap detailing the potential to grow adjusted profit by more than 20% in the medium term.”
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 months. Its SA property values increased for the first time since the pandemic, growing 1.4% (R998 million) to R70.3 billion and signifying greater stability and some recovery.
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. This set the stage to successfully negotiate better annual lease escalations, supported by a higher inflationary environment, however negative reversions on renewal persist. Positive key metrics drove up the industrial portfolio value by 1.9%. Taking advantage of the demand for industrial properties, Growthpoint continued selling non-core smaller assets to owner-occupiers and investors.
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 is starting to achieve renewal growth and improved lease terms, supporting retail portfolio valuations increasing 1.9%.
More staff are returning to offices in line with company policies and with the ongoing impact of loadshedding. Businesses that previously gave up space are starting to take up office space again, and as such interest in Sandton offices is picking up. Vacancies of 20.4% show a stabilisation, coming down slightly from 20.7% over the six months. The renewal success rate improved from 58.0% to 66.4% in a market where tenants continue to consolidate and reduce space. The office portfolio resumed its capital growth at a modest 0.7%, reflecting better sentiment and stability for the sector notwithstanding negative reversions on renewal.
Growthpoint’s broad development expertise creates opportunities to generate profits and supports its disposal strategy by unlocking the best value from non-strategic assets. The contribution to distributable income from trading and development was a steady R77 million for the period.
Load shedding in SA started in late 2007, and since then, Growthpoint has evolved and improved its response, first with generators and now focusing on solar power. Growthpoint’s active investment in solar plants will see it more than double its 13.5MWp of installed renewable energy generation to 27.4MWp before end-June 2023 at an investment of R210 million. In total, this takes the replacement cost of its solar plants to around R400 million. It also has 332MW of generation potential from 334 backup generators and spent R47 million spent on diesel during the six months.
The post-pandemic rebound in international tourists and the return of events led to excellent performance across the board from the iconic V&A Waterfront, Cape Town, in which Growthpoint has a 50% interest with its share of property assets valued at R9.2 billion. Precinct-wide, vacancies are at a low 0.7% and demand for space is strong. The V&A achieved exceptional growth in net property income of 23.0%. Record December 2022 retail sales surpassed R1 billion, 28% higher than December 2019.
Demand for V&A offices is strong, with vacancies a mere 1.2%. The new 10 500m2 office development in the Canal District will be entirely occupied by Investec and will be completed in the last quarter of 2023. Residential-to-let vacancies dropped from 18% to 5% over the six months. Marine and industrial achieved a 45% increase in net property income. The cruise season launched in October 2022 with 18 vessel visits and some 42 000 passengers and crew processed at the V&A. A further 52 vessels are booked to the May 2023 season close. Casual berthing of superyachts and charter vessels performed excellently.
“The V&A has shrugged off the effects of the pandemic to deliver a very healthy performance, and all sectors are enjoying low vacancies and strong demand,” says Sasse.
Growthpoint Investment Partners contributed R48.1 million in management fees and R79 million in dividends to Growthpoint. It continued growing AUM and attracting appetite from top-quality co-investors. Growthpoint’s capital-efficient alternative real estate co-investment platform, which includes three funds, added nearly R1 billion AUM during the period as it grows towards its goal of R30 billion AUM by the end of FY27.
Growthpoint Healthcare REIT delivered DPS growth of 7%, attracted a R500 million investment from the Namibian Government Institutions Pension Fund (GIPF Namibia) and sold 15% of its management company to Kagiso in February 2023. GIPF’s investment reduced Growthpoint’s shareholding to 39.1%. SA’s first unlisted healthcare REIT has a property portfolio valued at R3.6 billion. It acquired its first logistics asset in the period and has earmarked some of the R340 million of debt funding available from the IFC for two development projects that will increase healthcare facilities in KwaZulu-Natal.
Growthpoint Student Accommodation REIT performed in line with original income expectations. It attracted a R250 million investment from GIPF Namibia and is in the process of a R2.5 billion capital raise, which will close in August 2023. Growing its AUM, it acquired one plot of land and is developing two new student accommodation projects for the 2024 academic year. Growthpoint has a 14.3% investment in SA’s first unlisted purpose-built student accommodation REIT, which has a R2.7 billion portfolio of 6,443 beds in Johannesburg, Pretoria, and Cape Town.
Lango Real Estate successfully concluded a capital raise of USD125 million, including an investment from Growthpoint of USD30 million (R513.8 million). The funds will be deployed to enter the Nairobi, Kenya, market and reduce debt. The protest-damaged Circle Mall in Nigeria is fully reinstated and commenced trading in phases from November 2022. Growthpoint holds an 18.4% shareholding in Lango, which has a USD612.3 million portfolio of prime office and retail assets in Ghana, Nigeria and Zambia, and land in Angola.
“Growing Growthpoint Investment Partners is a strategic focus. We aim to increase AUM and seek new co-investment opportunities that appeal to quality investment partners but are distinct from Growthpoint’s retail, office and industrial core assets,” says Sasse.
Growthpoint’s diversified portfolio, strong balance sheet and stable hard currency dividend income streams position the company defensively for the rest of FY23. However, with elevated uncertainty in the local and global macroeconomic environment and rising interest rates and inflation, Growthpoint still expects to deliver muted full-year DIPS growth.
“Growthpoint has a defensive, diversified business with the great strengths of skilled people and a strong balance sheet. We have clear and robust strategies and remain committed to creating and conserving value for all our stakeholders,” he concludes.