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‘Toughest conditions in 20 years’ for Growthpoint

And it reckons things are likely to get worse.
Growthpoint’s shiny new R1.2bn 144 Oxford Street office development in Rosebank. Image: Supplied

Deteriorating economic conditions in South Africa dragged down property giant Growthpoint’s performance for its half-year to December, virtually wiping out the income growth it achieved from its offshore property investments in Australia and Europe.

This was the key message from Growthpoint executives speaking during a media briefing on Wednesday, following the release of its interim results.

Growthpoint, a JSE Top 40 company and SA’s largest primary listed real estate investment trust (Reit), reported nominal growth in dividends per share (DPS) of just 0.2% or 106 cents per share for the six months ending December 31, 2019.

While this was in line with the group’s guidance for the period, it confirms Growthpoint’s worst DPS performance since Reit legislation came into place in late 2013.

Knife’s edge

“These are the toughest conditions we have experienced in 20 years,” said Growthpoint Group CEO Norbert Sasse.”The only reason we are seeing some growth is due to our internationalisation strategy.”

Norbert Sasse, Group CEO of Growthpoint Properties. Image: Moneyweb

“The group’s growing international footprint gives us a bit of a defensive edge. The considerable gains from our internationalisation strategy were erased by the underperformance of our domestic property portfolio as a result of SA’s economic decline, with the V&A Waterfront being an exception,” he noted.

“Economic conditions in South Africa have deteriorated to such an extent and pace that we needed other strategies to literally stand still [from a DPS growth perspective]. And there is no sign of short-term recovery.

“With the SA economy declining further, we are still guiding for nominal full-year growth, if any,” he added.

Read: SA Reit sector worst performing asset class again in 2019

Sasse was loath to offer any DPS forecast for 2021, saying the group will only comment when its 2020 full-year financial results are released in August.

With the coronavirus outbreak hitting the global economy – and already impacting Growthpoint’s key markets in SA, Australia and Europe (it has a presence in the UK, Poland and Romania) – he concedes that the virus presents a risk to growth.

“What happens with coronavirus only time will tell, but for the SA economy to recover we need a strong global economy and more foreign direct investment,” said Sasse. He pointed out that with the financial health of both the government and the private sector in SA having deteriorated over the last few years, both sectors had a reduced ability to stimulate growth in the economy.

Growthpoint, which now has a R160 billion property portfolio in SA and offshore, reported distributable income growth of 2.2% for the six-month period to R3.2 billion. During the period, it invested R4.2 billion internationally, including a R2.9 billion deal finalised in December for a 51% stake in UK retail Reit Capital & Regional.

Read: Growthpoint is not overpaying for Capital & Regional, says Sasse

The deal saw its offshore property exposure increase to just over 35%, adding to its 62% long-time majority stake in ASX-listed Growthpoint Properties Australia (Goz) and 29.4% stake in LSE AIM-listed Globalworth Investment Holdings (GWI), which invests in the Central and Eastern Europe nations of Poland and Romania.

Although its investment in Capital & Regional was finalised in the last week of 2019, Growthpoint said the UK fund had made a positive 2.7% contribution to its distributable income growth. GWI contributed 2.9% of Growthpoint’s distributable income growth, while Goz made a 0.8% contribution.

Growthpoint now owns and manages a diversified portfolio of 563 property assets, including 441 properties across SA valued at R79.2 billion and a 50% interest in the properties at Cape Town’s landmark V&A Waterfront, valued at R9.7 billion. The domestic portfolio saw a 2.9% decline in its contribution to the group’s overall distributable income.

Read: V&A Waterfront a top performer for Growthpoint

Estienne de Klerk, CEO of Growthpoint’s South African operations, said almost all of its local portfolio metrics weakened during the six months, with overall vacancies increasing from 6.8% to 7.4%.

Office vacancies increased from 10.4% at its 2019 year-end to 11.5% for its half-year, while retail and industrial vacancies were up marginally. Rental arrears also increased and bad debt expenses spiked from R4 million (FY19) to R20.8 million for the interim period. The group also saw a R730.7 million devaluation of its overall SA portfolio.

De Klerk said the V&A Waterfront was the star performer yet again within its SA portfolio, noting that the group’s properties in the Western Cape and KwaZulu-Natal are performing better than the rest of the country.

He added that the group is still investing in SA, having pumped around R1.4 billion into new developments and capital improvements during the period.

This includes the development of the landmark new R1.2 billion 144 Oxford Street office building in Rosebank, which was completed in February 2020. The building was developed as a speculative project; however, Growthpoint has secured a major anchor tenant that will take occupation in July.

Read: Exclusive: Growthpoint’s ambitious Sandton Summit plan

Commenting on Growthpoint’s half-year performance, Nesi Chetty, senior listed property fund manager at Stanlib, said SA’s negative operating environment continues to weigh on the group’s DPS and net asset values, with both flat over the period.

“Growthpoint has sufficient liquidity and fairly new centres, so the group hasn’t needed to rebase their earnings and adopt a payout ratio like we have seen from other listed property companies,” said Chetty.

“The group is still guiding to effectively zero [DPS] growth for the full year. While their international assets are likely to deliver good yields and returns, this will be offset to a large extent by the pressures seen in the local property portfolio at an operating income level.”

Coronavirus impact

Chetty also warned that the spike in coronavirus cases will have a negative impact on inbound tourism to SA, which will affect the performance of the V&A Waterfront, the country’s top tourist attraction.

Ian Anderson, chief investment officer at Bridge Fund Managers, also raised concerns about the potential ramifications of the virus.

“The spread of the coronavirus in Europe is a significant risk for the SA businesses that have invested heavily into the region over the last five years or so.

“At this stage we can only speculate what the final impact will be, but it’s certainly something else for investors to worry about.”

Anderson points out that from Monday, all schools, universities, museums and cinemas in Poland will be closed to prevent the spread of coronavirus. “They only have 26 confirmed cases and no deaths, but are already taking quite drastic action, which is likely to curtail economic activity in the region and discourage tourism.”

Listen to Nompu Siziba’s interview with Estienne de Klerk of Growthpoint SA:

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Like SASOL these companies shares seem to peak as soon as they announce the building of a new shiny egocentric head office . Pride/ arrogance before the fall ……..

In the meantime our ANC “plonker” Government keeps going the Populist / socialist / communist / unionist route.

You have to question the level of intelligence here. Right to the top. There could be no other reason for this madness.

All the REITs etc can contribute directly to their bottom line and also assist tenants if the install solar and energy efficiency.

The solar can be installed at a tariff lower than the munic. As a tenant push for a discount on electricity tariffs.

However at a cash on cash yield in year one of up to 14% this must be a no-brainer for every single property company out there. (Sorry small residential your CoC is still under 10%)

Furthermore a 100% depreciation allowance in year one must make this even more attractive.

On energy efficiency come on someone come up with a model for changing all the lights at the very least. Payback 4 – 12 months depending on ease of change

Maybe the funds should tell us how much they invested in Growthpoint and what the mark-to-market looks like?

The performance of the listed property sector serves an indication of the effect that the tripartite alliance has on the economy. At some stage, the value of assets has to reflect the political environment. Now, after 25 years of socialist/communist rule, we have reached that stage. Hyprop has lost 65% of its value since 2016. This destruction of value is a graphic representation of the effect of ANC policies.

The redistributive municipal rates and taxes, the taxes on capital formation, the BEE tax, the cadre tax that comes with the cost of the most expensive electricity in the world, the SOE monopoly tax in the form of load-shedding, the Cosatu tax in the form of incompetent, unproductive and militant workers and the cadre-deployment tax in the form of imploding municipal services is a destructive force that destroys value and capital.

This set of factors are part of the ANC. This destruction of value forces the Reserve Bank to keep interest rates high in order to sell government debt. The high interest rates are another drag on the economy and put further pressure on the value of a property.

In short, our assets are being expropriated without compensation already. The current process in parliament is irrelevant.

All true and very sad.Just like Zim and all other African states.

As long as the word growth is mentioned in the company reporting is all OK. Then just throw in the words, ‘if any’ to cover yourself.

Strange how the Vacancy rates have gone up , Economy is in the dwindle/rock bottom …
and buildings are sprouting up??? Something is not making sense here.

How could these corporates get it soooooo wrong???
If I could see the cracks in the economy …how in the world did these guys get it sooo wrong.

They can soon buy another shiny building in a few months time…. Sasol will need the cash.

Bad debt expenses increased by 420%!! That’s all you need to know about the state of RSA.

My take is that the banks just loan the money as they need to invest somewhere, but the developer is taking the risk.

When the profits are buoyed by optimistic revaluation journal entries managers brag about how great a job they did. Now, negative journals are blamed on the economy.

Yes, and they are all guilty of it to the extent where if these journal entries were not what they state the true returns would be negative a while back.

I know of a shopping centre (somewhere in cape town) where 6 places have closed.the one was a burger/pub type of place.the bloody rent was R83k/month.

….in other news Sasol is plumettiiiiiingggg. Down to R30 bucks… I love it.
Will wait for it at R5…. Thank you to the Saudi’s and Russians…. play your games…
and also show us the true price of Brent … So that we know how much Sasol has been ripping us off.

U see … competition is good…. we need competition everywhere … construction, banking, IT….. etc

Sasol US is sitting like a duck in the water and 100 asset stripping funds holding double barrel shot guns aimed at it

End of comments.

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