Growthpoint Properties, one of the biggest commercial property owners in South Africa, plans to increase its exposure to the positive performances of the KwaZulu-Natal and Western Cape coastal regions, and reduce exposure to the Gauteng market, specifically Sandton.
The group has a R197 billion portfolio in South Africa, rest of Africa, Australia, Poland, Romania and the UK, with 45.8% of the value located in this country. It also owns 50% of the V&A Waterfront in Cape Town.
Gauteng, and specifically Sandton, is considered to be the commercial heartland of South Africa.
“This strategic thrust is a response to the weak, long-term economic prospects in South Africa,” Growthpoint’s board said in its 2023 annual report, released Friday.
Growthpoint said it was rebalancing the South African portfolio away from risk and towards outperforming sectors, nodes and types and sizes of properties.
“While this is a gradual process, we are shifting the current balance of our portfolio away from the office sector and towards slightly more exposure in the industrial sector – specifically logistics,” the group said.
Further de-risking would involve ensuring core assets were less dependent on non-renewable energy and “increasingly unpredictable state and municipal utilities”.
“We have set ambitious environmental goals for our South African portfolio, including being carbon neutral by 2050. We continue to accelerate our investment in solar energy plants across our properties.“
To further de-risk the South African business, income streams were being diversified with a capital-light co-investment strategy.
This was focused on growing alternative (unlisted) real estate investments – different from Growthpoint’s retail, office and industrial assets – and to attract a pool of new investors, such as development finance institutions and impact investors.
“With R17.9bn of AUM (assets under management) we are well on track to achieve our target of R30bn AUM by the end of the 2027 financial year,” the group said.
The third leg of the group’s strategy was increasing offshore diversification, but currently the focus was on “optimising existing investments while prioritising a strong balance sheet”.
The group reported only muted growth in its 2023 financial year – distributable income per share increased only 1.3% – against a backdrop of rising interest rates globally, a struggling South African economy, extreme levels of load shedding and rising diesel costs.
Growthpoint said progress on its strategy would be incremental, rather than exponential.
Chief executive Norbet Sasse said in the report he expected the 2024 financial year to be another challenging one.
“The high interest rate environment is a global factor, so even our international investment strategy to diversify our portfolio away from South Africa’s weak fundamentals could not shield us. Interest rates are elevated in almost every market worldwide and this has affected all our international investments,” he said.
Besides interest rates, the performance in South Africa was symptomatic of weak economic fundamentals across the country, while work-from-home trends in the office sector and online sales in retail affected all the different sectors the group was exposed to, he said.
Growthpoint’s liquidity was good. Self funding was a key focus in the capital-constrained environment. Together with asset sales, a reduced payout ratio would continue to be applied to dividends for the foreseeable future to fund capex and the development pipeline, he said.
“We intend to focus on office disposals going forward. As part of this optimisation strategy, we reinvested into the local portfolio, rotating capital into high-demand industrial assets and away from the oversupplied office market. We also increased our exposure to the outperforming Western Cape market and reduced our exposure to the less favourable Gauteng market,” said Sasse.