Growthpoint Properties Limited (JSE: GRT) delivered a 1.3% increase in both dividend per share (DPS) and distributable income per share (DIPS) to 130.1 cents and 157.6 cents respectively for the 30 June 2023 financial year. Group property assets grew 5.3% to R179.8bn and foreign currency dividend income increased 7.6% to R1.6bn.

Norbert Sasse, Group CEO of Growthpoint Properties, comments, “Growthpoint did well to deliver a stable performance in line with expectations. We successfully achieved our planned outcomes in a year that was tougher than ever, reflecting the strength and diversification of our business and our quality earnings.”

Sasse notes that excellent results from the V&A Waterfront made the greatest increase in contribution to this solid set of results. In contrast, rising finance costs, particularly impacting Growthpoint’s South Africa and Australian businesses, presented the most significant downside.

Growthpoint creates space to thrive with innovative and sustainable property solutions in environmentally friendly buildings while improving the social and material well-being of individuals and communities. It is an international property company invested in real estate in South Africa, across Africa, Australia, Poland, Romania and the United Kingdom, and the largest South African, JSE primary listed REIT. Growthpoint is a FTSE/JSE Top 40 Index company, a constituent of the FTSE EPRA/NAREIT Emerging Index, and has a long-standing inclusion in the FTSE4Good Emerging Index and the FTSE/JSE Responsible Index. This year, it became a participant in the United Nations Global Compact.

Growthpoint remains focused on a strong balance sheet and the consistent application of conservative financial management in adherence with rigid treasury policies and balance sheet metrics. Its balance sheet strength and liquidity enable it to pursue its three key goals: international expansion, optimising its South African portfolio and increasing revenue from Growthpoint Investment Partners’ managed assets.

In line with its steady performance, Growthpoint kept its dividend payout ratio at 82.5%, consistent with its last financial year. It retained R938.5m 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 USD425m 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. Growthpoint has good liquidity with R1.7bn cash on its SA balance sheet and R6.6bn in SA 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 R215.0m for FY23.

Growthpoint continued the incremental growth of its strategic international investments with 45.8% of property assets by book value located offshore and 29.1% of DIPS earned offshore for FY23. It owns 58 office and industrial properties in Australia valued at R61.8bn through a 63.7% shareholding in GOZ and five community shopping centres in the UK valued at R8.5bn 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 R59.1bn in Romania and Poland. Its effective share is R17.4bn. It reinvested the December 2022 dividends paid by C&R and GWI, and the June 2023 dividends declared will be reinvested post-period.

Strong performance from GOZ delivered a 2.9% increase in AUD distribution growth to AUD21.4cps 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 a gearing of 37.2% and AUD300.0m of undrawn debt, 70.5% of its debt fixed and its debt book has an average term of 3.4 years.

All GOZ’s portfolio metrics are robust: it 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 AUD1.8bn of third-party funds under management.

“GOZ’s strong capital structure, prudent gearing, high-quality office tenant base and strong industrial property market position it solidly in a higher interest rate environment,” says Sasse. Due to the impact of high interest rates for a full year, GOZ has guided a 9.8% reduction in distribution per share to AUD19.3c and FFO per share of between AUD22.5c to AUD 23.1c 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 by 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 60,800 sqm of logistics and light industrial facilities, and has two small-unit logistics facilities under construction of 13,300 sqm. In Poland, it is refurbishing two mixed-use properties of 74,900 sqm.

“GWI is showing stability and has a prudent financial position, although challenging market conditions mean a more uncertain outlook and slower growth expectations. We continue to evaluate options to maximise the value of this investment,” notes Sasse.

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 GBP5.5pps totalling R103.6m 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 GBP12.9m in value-adding projects that will produce a yield on cost of between 8% and 9%. Post-period it completed the GBP40m 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.

“C&R is showing pleasing balance sheet stability and operational resilience,” Sasse says.

Good letting of a substantial 1.2m square metres in Growthpoint’s SA portfolio reduced vacancies overall to 9.4%. Its SA property values increased 1.2% to R70.5bn, 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 R165.4m from R195.3m 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 (WC) region. It sold 29 non-strategic properties for R1.5bn during the year, making a profit on book value of R107.8m. Growthpoint has sold 142 properties for R11.2bn in SA since 1 July 2016.

Growthpoint’s total expense ratio for its SA 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 load-shedding. Its diesel spend was R140.0m versus R15.4m 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 WC and KwaZulu-Natal (KZN) 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, KZN, and commenced four industrial developments in the WC, Gauteng and KZN.

The 2.3% increase in retail property portfolio valuations shows 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 load-shedding 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 WC 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 WC and KZN, 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 WC 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 R80.0m for the period.

Growthpoint invested R1.9bn of development and capital expenditure in FY23, with commitments of R1.8bn for FY24.

Growthpoint aims for excellent environmental, social and governance (ESG) performance. This year, it furthered its solar energy strategy to help its tenants avoid the impacts of load-shedding and to pursue its environmental commitments and carbon-neutral 2050 target. Over the approximately 15 years since load-shedding began in SA, Growthpoint has evolved and improved its response, first with generators, then focusing on solar power and now an optimal mix of clean energy and backup sources.

Growthpoint more than doubled its installed renewable energy generation to 27.32MWp during the year with a total investment of R395m in solar plants since FY21. It has targeted 40MWp of solar power generation capacity by the end of FY24. Growthpoint’s energy management ensures that its properties are well backed up to sustain tenant businesses.

“Our SA business is soundly positioned with a strong balance sheet and liquidity. Encouraging improvements are being led by the industrial and retail portfolios and our offices in WC and KZN. Our focus remains on optimising our SA portfolio, including lowering our exposure to offices and non-performing nodes in Gauteng while reducing reliance on the national electricity grid and fossil fuels,” says Sasse.

The iconic V&A Waterfront, Cape Town, in which Growthpoint has a 50% interest with its share of property assets valued at R10.1bn, 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 load-shedding has paid off, delivering a significantly improved performance, albeit at an R36m 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 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 10,500 sqm office for Investec is on schedule for completion in November 2023, and a 6,600 sqm 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 R98m. It ended the year with R17.9bn of assets under management (AUM) and attracted capital from top-quality co-investors as it grew towards its goal of R30bn 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 DPS growth of 8.2% and attracted an R500m investment from the Namibian Government Institutions Pension Fund (GIPF Namibia) in November 2022 reducing Growthpoint’s shareholding to 39.1% and dividend income to R121m (FY22: R143m). It also sold 15% of its management company to Kagiso in February 2023. GHPH has a property portfolio valued at R3.7bn and has raised R2.8bn of capital since inception. It acquired its first logistics asset in the period and had R340m of debt funding available from the IFC for two healthcare development projects in KwaZulu-Natal, and the R106.4m 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 92.52cps for FY23 with dividend income for Growthpoint of R22m (FY22: R17m) for its first full year of operation. GSAH increased its portfolio value to R2.7bn, attracted an R250m investment from GIPF Namibia and has received capital commitments of R330m as part of its current capital raise. It has raised R1.7bn 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 USD m including an investment from Growthpoint of USD m (R513.8m) and has secured additional commitments of USD m. 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 an AUM of USD611.2m comprising 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.

“Growthpoint Investment Partners is attracting good investment appetite from institutional investors, has a solid pipeline of opportunities to increase AUM for existing funds and launch a new fund by FY25,” says Sasse.

Growthpoint’s diversified portfolio across international geographies, sectors and income streams, together with its conservative financial management, sound balance sheet and steady income from foreign currency dividends position it defensively for FY24.

“Growthpoint is a strong, diversified business with talented employees, a solid financial foundation and clear strategic thrusts dedicated to delivering value for all stakeholders,” says Sasse.

Given the impact of high interest rates across both our local and international businesses for a full year, Growthpoint expects DIPS to decline by 10% to 15% for FY24. Growthpoint endeavours to maintain a payout 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 31 December 2026, thereby providing continuity in progressing the company’s various strategic initiatives.