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Growthpoint expects ‘little to no growth’ from SA portfolio

SA-focused Reit to look abroad for growth as local fundamentals ‘remain weak and are worsening’.

South African Real Estate Investment Trust (Reit) Growthpoint Properties released results for the six months to December 31, 2018 on Wednesday, at a time when local property counters continue to battle challenges following a particularly volatile 2018. 

Growthpoint, with a market capitalisation of R69.2 billion, is reporting 5.9% growth in distributable income to R3.1 billion and 4.3% growth in property assets. It will issue a dividend of 105.8 cents per share, up 4.5% since the previous reporting period. 

Growthpoint’s property portfolio is comprised of 447 SA-owned properties, which make up 62.3% of the portfolio and are valued at R77.2 billion, while the international component sits at 37.7%. The group owns 59 properties in Australia, valued at R38.4 billion, through its 66% interest in ASX-listed Growthpoint Properties Australia (GOZ). 

Read: Growthpoint invests almost R1bn more Down Under

It also owns 52 properties in Romania and Poland, valued at 2.5 billion euros through its 28.96% share in LSE AIM-listed Globalworth Investment Holdings and 21.6% share in Warsaw-listed Globalworth Poland Real Estate.

In reflecting on the group’s latest results, CEO Norbert Sasse says Growthpoint’s investments in Australia and Central Eastern Europe contributed most to growth. “There was no growth from our South African operations as a result of economic erosion and weakening property fundamentals, as well as asset disposals. We disposed of R2.8 billion of non-core assets in South Africa and put the proceeds to better use in other areas of the business.”

Gross revenue increased by 4.3% for the period; SA increased revenues by 3.1%, and the Australia operations increased revenues by 8.4%. Growthpoint says that even the V&A Waterfront, which is held by the company in its SA portfolio and benefits from local and international tourism, is not ‘immune to the erosion in the domestic economy and turnover rentals declined in HY19’. While the Cape Town water crisis is now under control, the company says that the V&A Waterfront is building its own desalination plant to take it entirely off the water grid.

Meanwhile, the group is facing other challenges at home such as that of Edcon’s demise, which is impacting a handful of property players. Growthpoint says it has already decreased its exposure to the retail group by approximately 9 000m2 since December 31, 2017 and expects this to decrease further by at least 18 000m2 over the next two years. The Reit participated in the restructuring of Edcon by providing it with an equity injection of R110 million, in return for an equity stake. However, this is noted in the group’s results as a non-adjusting event.

Read: Edcon gets lifeline from the public, landlords and lenders

It is no secret that listed property entities have had it tough lately given the low economic growth environment, financial pressures on consumers and the issue of oversupply in stock. Growthpoint emphasises the tough environment in SA, and says property fundamentals ‘remain weak and are worsening’. It says that little to no growth is expected from the SA portfolio going forward. Rather, it predicts that most of its growth will come from international investments, especially in Australia where property fundamentals ‘remain strong’.

Assuming no further deterioration in the South African business environment, the company’s board expects growth in dividends per share for the financial year ending June 30 of approximately 4.5%. 

Read the full Sens announcement here

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Blame the ANC! That is going to give me the biggest number of thumbs-up for sure, especially in an election year.

Imagine those revaluation adjustments. Side bet : they will be dressed up as one-off-nothing-to-see-bygones, whereas the journal entries that created those valuations for the past decade were trumpeted as value creation by brilliant management.

There is a MASSIVE hole in the listed property valuations. Tweak the cap rate up 2%, the vacancy up 5%, property expenses up 5% and the same building changes 30% in valuation

The Growthpoint CEO is right, no excitement the economy.

Few companies reporting an increase in profits, nearly 80% of companies are reporting a drop in profits.

The damage created by the ex-president is showing now.

But there is hope with the new administration.

What in particular gives you such confidence and hope with the new administration?
Just look at the ANC candidate list that came out today – all the Criminals fingered in the Zondo commmision are on the list again. How can you keep doing the same thing and expect a different result? That is the classic definition of insanity

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