Growthpoint has published its trading update for the first quarter of FY2024, reporting an improvement in most of its key performance indicators.
Its lease renewal rate between July and September 2023 was 78.2% versus 64.9% for FY2023 with vacancies having improved from 9.4% to 9.1%. Total space let during the period was 349 604m2, including renewed space. The average lease period on renewals was 4.9 years, notably longer than the 3.5 years achieved during FY2023 and driven mainly by the renewal of a lease in the healthcare fund for 20 years. The REIT’s renewal growth rates for the quarter improved from -12.9% to -7.5%. Arrears increased from R165.4 million to R176.7 million, mainly attributable to the healthcare fund.
The company also reported continued improvement in its industrial and retail portfolios with “gradual progress in recovery” of its office portfolio.
Retail
Vacancies in its retail portfolio reduced from 6.3% to 6%, and core vacancies were low at 3.6% (FY2023: 3.1%). According to Growthpoint, these figures are poised to improve further once key re-developments, to be fully let, are completed.
Trading density growth for the quarter slowed, moving to 5.2% from 6.2% as at the end of June 2023. The company’s focus on tenant retention has transpired in the high renewal success rate of 91.5% (FY2023: 83.3%). However, this will not be maintained during the year as Game stores at Brooklyn Mall and Alberton City will not be renewing with several Edgars stores reducing space. Rental reversions are moving into a positive territory, from -9.1% to -2.3% with arrears improving from R40.3 million to R37 million.
Growthpoint sold City Mall in Klerksdorp for R202 million during the quarter with transfer pending. Another tree assets and two properties are earmarked for subdivision from existing shopping centres, have been approved for disposal for a total of R721.3 million.
Office
“The sentiment towards offices is slowly improving”. Growthpoint successfully let c.58 000m2 of office space and renewed c.33 000m2, reducing vacances from 19.2% to 18.9%. Rental reversions also improved from -20.1% to -18.9%, however, the renewal success rate of 51.8% decreased from 60.4%. Fewer tenants are reducing space, and persistent negative reversions stemming from market rentals are not keeping pace with escalations, are showing signs of easing.
Vacancies in its office portfolio in KZN increased slightly from 1.7% to 2.6% with vacancies in the Western Cape having reduced from double digit figures to single-digit territory. Its Gauteng portfolio also saw a reduction in vacancies from 24.1% to 23.3% with Sandton reducing from 28.7% to 27.7%. Letting activity in Sandton has increased. Arrears in its office portfolio remain stable at R53.9 million.
Growthpoint sold non-core office assets to the value of R18 million during the quarter with another three sales agreements for R359 million awaiting transfer. A further five properties have been approved for sale at approximately R545 million.
Industrial
Growthpoint continues to let its industrial space. Despite adding c.9 000m2 of speculative development to its portfolio, vacancies reduced from 3.7% to 3.3%. Coastal regions have shown lower vacancies of 0.1% for KZN and 2.5% for the Western Cape. In Gauteng, were two-thirds of the portfolio is located, vacancies were 4.6% following the completion of two speculative high-quality logistics facilities in Samrand.
Arrears remained steady at R34.7 million with approximately R11 million resulting from liquidations.
Tenant retention improved significantly to 81.8% from 59.1% with rental reversions also improving from -10.4% to -6.1%. Rental renewal growth numbers in Cape Town were 7.4%, reflecting strong regional market dynamics.
Growthpoint sold and transferred three non-core office assets for R88.3 million and signed sales agreements for R155.3 million for another five properties awaiting transfer. A further seven assets have been approved for sale for approximately R422.8 million.
The V&A Waterfront
Trading has continued to be fuelled by a 32% increase in international tourists, semigration, and a high demand for office space. Earnings before interest and tax was up 9% on the comparative quarter. Earnings growth was tempered by economy-wide challenges including high interest rates, on-going load shedding and above-inflationary cost increases.
Precinct-wide, the V&A has negligible vacancies at 0.7% with retail sales having increased 20% compared to the prior year and 43% on 2019. Visitor numbers rose 49% on the same quarter in 2022 with hotels having attracted consistent high demand. The marine and industrial sectors enjoyed strong growth in mooring income with the demand of office space high (zero vacancies).
The new Helistop was completed in September 2023 and Investec took occupation of its 10 500m2 offices in November. The first TimeOut Market in South Africa also started trading during November.
The V&A Waterfront now funds its development pipeline via balance sheet debt. It has secured a further R1 billion loan, including R750 million in the form of a green loan, at competitive pricing. It has R2 billion of committed facilities, of which R790 million was drawn as at the 30th of September 2023. Distribution to its shareholders, including Growthpoint, are now based on distributable income net of interest, and are not reinvested, while the net effect is the same, the structure is different.
The V&A is on track to achieve high single-digit growth in distributable income for the year ahead.
Trading and development
Growthpoint anticipates a busy second quarter with the handover of two student accommodation projects for Growthpoint Student Accommodation REIT for the 2024 academic year, the transfers for the disposal of Woodburn Square in Pietermaritzburg, and the residential units at Kent in La Lucia.
Its residential conversion of the Riverwoods office in Bedfordview into BlackBrick Bedford urban resort is 85% sold with the first transfers scheduled for the end of 2023.
