Growthpoint Properties has delivered a 1.3% increase in both its dividend per share and distributable income per share to 130.10 cents and 157.6 cents respectively for its financial year ended June 2023. The REIT’s property assets grew 5.3% to R179.8 billion with foreign currency dividend income increasing 7.6% to R1.6 billion.
Norbert Sasse, Group CEO of Growthpoint Properties noted that the excellent results from the V&A Waterfront made the greatest increase in contribution to the solid set of results. In contrast, rising finance costs, particularly impacting the company’s South Africa and Australian businesses, presented the most significant downside.
The company kept its dividend payout ratio at 82.5%, consistent with its last financial year. It retained R938.5 million before tax to fund capital expenditure and developments together with the proceeds from property disposals.
Its conservative group SA REIT loan to value (LTV) ratio was 40.1% with a solid interest cover ratio (ICR) of 2.9 times. Growthpoint refinanced its USD425 million Eurobond which matured in May 2023 with longer tenure EUR debt facilities in a challenging market, extending the average term of its debt book to 3.5 years. It also secured long-dated bonds through private placements with the International Finance Corporation (IFC) and other debt investors at attractive margins.
The company’s liquidity includes R1.7 billion cash on its South African balance sheet and R6.6 billion in South African unutilised committed debt facilities. In a rising interest rate environment, 77.7% of its debt book is hedged. Domestic finance costs, including finance costs and income received on interest rate swaps, increased by R215 million for FY23.
Growthpoint continued the growth of its strategic international investments with 45.8% of property assets by book value located offshore and 29.1% of distributable income per share earned offshore for FY23. It owns 58 office and industrial properties in Australia valued at R61.8 billion through a 63.7% shareholding in GOZ and five community shopping centres in the UK valued at R8.5 billion through a 62.4% investment in LSE- and JSE-listed Capital & Regional (C&R).
Through its 29.5% investment in LSE AIM-listed Globalworth Real Estate Investments (GWI), Growthpoint owns an interest in 72 office and industrial properties valued at R59.1 billion in Romania and Poland. Its effective share is R17.4 billion. It reinvested the December 2022 dividends paid by C&R and GWI, and the June 2023 dividends declared will be reinvested post-period.
A strong performance from GOZ delivered a 2.9% increase in AUD distribution growth to AUD21.4 cents per share supported by once-off income from the early termination of two leases, which was offset by withholding tax increasing from 9.9% to 12.8%. GOZ’s AUD funds from operations (FFO) decreased by 3.2% mainly as a result of higher finance costs. GOZ has gearing of 37.2% and AUD300 million of undrawn debt, 70.5% of its debt fixed and its debt book has average term of 3.4 years.
The GOZ’s portfolio is 96.6% occupied by gross lettable area (GLA), with 95% of the portfolio leased to the government, listed and large organisations. While the impact of working trends on the office sector is less pronounced in Australia than in South Africa and Eastern Europe, the sector is underperforming. GOZ has 65% of its portfolio by value exposed to the office market. Australia’s illiquid direct property market limited the growth of GOZ’s Fortius Fund Management, which has AUD1.8 billion of third-party funds under management.
Due to the impact of high interest rates for a full year, GOZ has guided a 9.8% reduction in distribution per share to AUD19.3 cents and FFO per share of between AUD22.5 cents to AUD 23.1 cents in FY24.
GWI yielded a resilient performance with a 7.4% increase in dividend per share. Increased inflation underpinned rental increases. With global challenges impacting office markets in particular, signs of pressure were evident in vacancy rates and leasing incentives, and portfolio valuations decreased 2.5% with Bucharest and Warsaw performing better than the regional cities in Poland. GWI has gearing of 42.7% with no material debt maturity until March 2025. Most of GWI’s funding is fixed and in the debt capital markets, limiting interest rate exposure.
GWI achieved good letting however vacancies increased to 14.5%. It continued its development focus on logistics facilities in Romania, delivering 60 800m2 of logistics and light industrial facilities, and has two small-unit logistics facilities under construction of 13 300m2. In Poland, it is refurbishing two mixed-use properties of 74 900m2.
C&R had a good year operationally with robust metrics driven by its community-focused needs-based retail strategy. It significantly increased its dividend from GBP2.75 pence per share (pps) to GBP5.5 pps totalling a R103.6 million for Growthpoint. After significant write downs to valuations in recent years, valuations have stabilised and improved by 2.1% in the last six months to FY23. Its LTV ratio increased to 42.0%. C&R’s exposure to interest rates is limited with 98% of its debt fixed.
It invested GBP12.9 million in value-adding projects that will produce a yield on cost of between 8% and 9%. Post-period it completed the GBP40 million acquisition of The Gyle Shopping Centre in Edinburgh in an earnings-enhancing transaction, even though the equity raised to fund the transaction was at a discount to NAV.
Good letting of a substantial 1.2 million square metres in Growthpoint’s SA portfolio reduced vacancies overall to 9.4%. Its SA property values increased 1.2% to R70.5 billion, signifying greater stability and a more positive market view on future rental growth rates. Renewal rental growth rates remained negative at -12.9% versus -12.8% for FY22. Credit metrics improved and arrears reduced to R165.4 million from R195.3 million at FY22.
Growthpoint owns and manages a diversified core portfolio of 362 retail, office, and industrial properties across SA. It manages these assets to optimise their value over the long term but also seeks to sell non-core assets and recycle capital to rebalance its portfolio towards higher growth sectors and regions, specifically industrial assets, and the Western Cape region. It sold 29 non-strategic properties for R1.5 billion during the year, making a profit on book value of R107.8 million. Growthpoint has sold 142 properties for R11.2 billion in SA since the 1st of July 2016.
Growthpoint’s total expense ratio for its South African business increased from 33.5% to 35.5%, with continued above-inflation hikes in municipal rates and taxes, plus rising utilities costs and diesel for backup electricity for its tenants as a result of the extensive loadshedding. Its diesel spend was R140 million versus R15.4 million in FY22, of which 41.7% of this was recovered.
Growthpoint’s strongest and most active sector was its industrial property portfolio. All its industrial property metrics were positive, except for renewal growth as longer leases continued to revert to market. Improved letting saw vacancies reduce significantly from 5.7% to 3.7%, and in the Western Cape and KwaZulu-Natal vacancies were a low 3.3% and 0.8% respectively. Positive key metrics drove up the industrial portfolio value by 3.0%. Taking advantage of the demand to own industrial properties, Growthpoint sold 20 non-core smaller assets to owner-occupiers and private investors. It acquired one fully let property in Hammarsdale, KwaZulu-Natal, and commenced four industrial developments in the Western Cape, Gauteng and KwaZulu-Natal.
The 2.3% increase in retail property portfolio valuations shows the improved trading conditions for most of the year driving improved metrics. The retail property portfolio reflected a steady low core vacancy of 3.1%. Trading density growth, which was stronger in the first half of FY23 at 8.6% slowed to 6.2% in the second half as a result of loadshedding disrupting trading, interest rate increases and the weaker economy putting pressure on consumer spending. While leases continued to revert negatively and rental escalations on renewal remained under pressure, this began improving towards year end. Upgrades and expansions are underway at Bayside Mall, Beacon Bay Retail Park, River Square and Vaal Mall.
The office property portfolio vacancies reduced to 19.2% after peaking at 22.4% in March 2022. In KZN vacancies were 1.7% (FY22: 7.7%) and 7.7% (FY22: 13.6%) in the Western Cape showing the return of positive property fundamentals in these regions. In Gauteng, vacancies in Illovo halved from 45% to 22% and should reduce below 10% in FY24. Letting continues in Sandton, where many large users are back at the office more frequently leading to increased occupancies, but businesses are still consolidating and reducing space. The node represents 21.9% of the Growthpoint’s office GLA and is 28.7% vacant. Higher occupancy and improved metrics saw office valuations increase by 3.2% in both the Western Cape and KwaZulu-Natal, but decrease by 2.7% in Gauteng, taking the total valuation to -0.9%. Adding more amenities to its offices, it completed the refurbishment of The Place at 1 Sandton Drive. Meeting the demand for hotels in the Western Cape at its Longkloof precinct, Growthpoint is developing the 150-room Hilton Canopy Hotel set for completion in October 2024.
Growthpoint’s in-house trading and development division develops assets for its own balance sheet and generates development fees from third-party developments as well as trading profits. The contribution to distributable income from trading and development was R80 million for the period.
The company invested R1.9 billion of development and capital expenditure in FY23, with commitments of R1.8 billion for FY24.
The V&A Waterfront, Cape Town, in which Growthpoint has a 50% interest with its share of property assets valued at R10.1 billion, delivered outstanding performance driven by the return of tourism and events to its market. This boosted net property income 20% higher than FY22 and 11.2% above FY19, while footfalls increased 28% recovering to 90% of FY19 numbers. The strategy of guaranteeing that all retail, restaurants, and hotels were able to trade normally through the 325 days of loadshedding has paid off, delivering a significantly improved performance, albeit at a R36 million diesel cost. Vacancies across the precinct were a low 0.4%.
Retail sales increased by 39% and trading densities increased by 48%, with retail vacancies a mere 0.2%. Alfred Mall reopened in December 2022 and is trading well. Hotels at the V&A Waterfront had an exceptional year, with net property income increasing by 39%. Occupancy levels grew by 56%, the average daily rate by 42% and room revenue climbed 122%. Residential-to-let vacancies improved from 17.8% at FY22 to 2.3%.
Demand for V&A offices is strong, with vacancies at 0.2%. The new 10 500m2 office for Investec is on schedule for completion in November 2023, and a 6 600m2 office conversion in the cruise terminal is underway for completion in FY24. In the marine and industrial sector, moorings performed excellently, up 9%, and the cruise season saw 185 000 passengers and crew welcomed at Cape Town Cruise Terminal.
“Having virtually no vacancies and strong demand across the board bodes well for future rental growth at the V&A, which expects high single-digit income growth for the year ahead,” says Sasse.
Growthpoint Investment Partners increased its asset management fees by 44% to R98 million. It ended the year with R17.9 billion of assets under management (AUM) and attracted capital from top-quality co-investors as it grew towards its goal of R30 billion AUM by the end of FY27. Growthpoint’s capital-efficient alternative real estate co-investment platform includes three funds that are distinct from Growthpoint’s retail, office, and industrial core assets. They are well-suited for social impact investment in alternative real estate sectors that inherently contribute to societal good.
Growthpoint Healthcare Property Holdings (GHPH) delivered a distribution per share growth of 8.2% and attracted a R500 million investment from the Namibian Government Institutions Pension Fund (GIPF Namibia) in November 2022 reducing Growthpoint’s shareholding to 39.1% and dividend income to R121 million (FY22: R143 million). It also sold 15% of its management company to Kagiso in February 2023. GHPH has a property portfolio valued at R3.7 billion and has raised R2.8 billion of capital since inception. It acquired its first logistics asset in the period and had the R340 million of debt funding available from the IFC for two healthcare development projects in KwaZulu-Natal, and the R106.4 million acquisition of the Johannesburg Eye Hospital in Northcliff recently approved by the Competition Commission.
Growthpoint Student Accommodation Holdings (GSAH), in which Growthpoint has a 14.3% holding, declared a dividend of 92.52 cents per share for FY23 with dividend income for Growthpoint of R22 million (FY22: R17 million) for its first full year of operation. GSAH increased its portfolio value to R2.7 billion, attracted a R250 million investment from GIPF Namibia and has received capital commitments of R330 million as part of its current capital raise. It has raised R1.7 billion since inception. With strong demand, it will increase beds to 8 800 for the 2024 academic year and has acquired three development sites for the 2025 and 2026 academic years, two near Wits University and one at the University of KZN. A vendor rental guarantee shielded the portfolio against the negative impact of NSFAS unilaterally capping the student accommodation allowance to R45 000 a year in 2023, which negatively impacted the Pretoria portfolio. It is engaging various stakeholders for solutions to this matter and reconfiguring properties where appropriate.
Lango Real Estate successfully raised USD40 million including an investment from Growthpoint of USD30 million (R513.8 million) and has secured additional commitments of USD85 million. With these funds, it intends to reduce debt and potentially acquire assets which will aid Lango’s diversification strategy. Growthpoint holds an 18.4% shareholding in Lango, which has AUM of USD611.2 million comprising of prime office and retail assets in Ghana, Nigeria and Zambia, and land in Angola. Lango’s contribution to Growthpoint decreased because of structural challenges that included higher interest costs, the inability to convert Naira into USD to externalise from Nigeria, and Mauritian regulations regarding retained earnings.
Given the impact of high interest rates across both the local and international businesses for a full year, Growthpoint expects distributable income per share to decline by 10% to 15% for FY24. Growthpoint endeavours to maintain a pay-out ratio of 82.5%.
The Board of Directors of Growthpoint Properties is pleased to advise that Norbert Sasse has agreed that he will continue in his capacity as Group CEO until the 31st of December 2026, thereby providing continuity in progressing the company’s various strategic initiatives.