Growthpoint produces solid interims as it takes cautious stance for year ahead

Growthpoint CEO Norbert Sasse. Photo: Suppiled

Growthpoint CEO Norbert Sasse. Photo: Suppiled

Published Mar 16, 2023

Share

The management at Growthpoint Properties presenting South Africa’s largest primary listed Reit’s interims yesterday adopted a tone of caution and defensive stance for the year ahead with muted growth on the horizon.

Looking ahead, Growthpoint said its diversified portfolio, strong balance sheet and stable hard currency dividend income streams position the company defensively for the rest of financial year 2023.

“However, with elevated uncertainty in the local and global macro-economic environment and rising interest rates and inflation, Growthpoint still expects to deliver muted full-year DIPS (Distributable income per share) growth,” it said.

CEO Norbert Sasse, talking about the firm’s interim results for the period ended December 31, 2022, said it would take about a three to five-year period for property values to recover.

This after the Covid-19 pandemic dented global property valuations and was followed by high inflation worldwide, which led to higher interest rates, hurting the sector.

For the reporting period, the SA Reit net asset value (NAV) per share of the group decreased by 2.2% to 2 110 cents per share.

Helping the firm was a conservative hedging strategy by entering into interest rate swop contracts so that at least 85% of interest on debt was at fixed rates. Sasse said this saved the firm around R1.2 billion.

And standing Growthpoint in good stead is its diverse property portfolio, which comprises South African assets (inclusive of the V&A Waterfront) (56.3%) and international assets (43.7%).

Despite South Africa’s tough macro-economy, amid unprecedented load shedding, Growthpoint’s dividend per share increased by 4.6% to 64.3c. Its dividend payout ratio rose to 82.5% from 80.0% at the prior half-year.

Distributable income per share (DIPS) was also up 1.3% to 77.9c per share. Group property assets grew by 2.0% to R174.1bn and hard currency dividend income increased by 10.1% to R763 million.

Sasse said he attributed this defensive performance to “excellent results from the V&A Waterfront and ASX-listed Growthpoint Properties Australia (GOZ), improved letting and reduced vacancy in the South African portfolio, and Growthpoint Investment Partners’ ongoing attraction of quality co-investors”.

The Reit ended the period with R1.6bn cash on its South African (SA) balance sheet and R10.3bn in SA unused committed debt facilities. This included contingencies for the upcoming maturity of its USD Eurobond of R7.4bn in May 2023, which it would repay with facilities in place.

Its Loan-to-value (LTV) increased to 38.8% from 37.9% in the corresponding period in the prior year mainly due to debt-funded acquisitions in Australia.

In South Africa, a highlight was the V&A Waterfront’s performance as it delivered a stellar performance with 23.0% growth in net property income compared to the comparative period as the V&A fully rebounded from the effects of the pandemic.

But hindering the group’s performance in the country was escalating financial costs, which grew by 6.9% in the reporting period to R1.2bn. Despite this, group revenue increased by 7.4% to R6.85bn.

And with load shedding affecting its portfolio, Growthpoint said its active investment in solar plants would see it more than double its 13.5MWp of installed renewable energy generation to 27.4MWp before end-June 2023 at an investment of R210m. It also has 332MW of generation potential from 334 back-up generators and spent R47m spent on diesel during the six months.

Growthpoint’s management also highlighted how the metropolitans were unrealistically hiking property valuations by double digits, with Gauteng the worse culprit. This as there was a decrease in services rendered. However, this was a battle the South African Property Owners Association was spearheading. Growthpoint was going through each and every property and, when appropriate, querying valuations.

Cape Town was seen by the firm’s management as a better city to appeal for future local investments, not only because services were better, but economically it was on a growth trajectory. Although properties were expensive, the Western Cape was seen as good value for money.

Sasse also said the group continued to look to expand internationally.

“However, to do anything currently would be limited considering where our LTVs are and considering that the share price is trading at a 38% discount to NAV. So the current focus remains on some of our existing investments and optimising those.”

A strategic focus for Growthpoint was also growing Growthpoint Investment Partners, Sasse said.

“We aim to increase AUM (assets under management) and seek new co-investment opportunities that appeal to quality investment partners but are distinct from Growthpoint’s retail, office and industrial core assets, ” he said.

Growthpoint Investment Partners contributed R48.1m in management fees and R79.0m in dividends to Growthpoint. Growthpoint’s capital-efficient alternative real estate co-investment platform, which includes three funds, added nearly R1bn AUM during the period as it grows towards its goal of R30bn AUM by the end of financial year 2027.

BUSINESS REPORT