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Growthpoint delivers 6.1% interim distribution growth

SA shopping centres provide 75% of net property income – Estienne de Klerk, MD – Growthpoint Properties.

SIKI MGABADELI:  Property group Growthpoint came out with interim results this morning, saying dividends grew 6.1% in the six months to end-December. Revenue for the period increased to R5.2 billion; operating profit rose to R3.9 billion with headline earnings per share at 100.12c/share.

Estienne de Klerk is MD at Growthpoint and joins us now. Estienne, thanks so much for your time today. We know how tough the past year has been, making it very difficult for property companies such as yourselves to eke out growth, to deliver above-inflation dividend growth. What’s the environment like now?

ESTIENNE DE KLERK:  I think we are quite fortunate, Siki, that we’ve got quite a diversified business today. If you look at Growthpoint today it’s probably the most liquid and tradable and also the most diversified real-estate holding in the country. So the next time you advise your granny to go and buy that investment flat, it’s probably better to buy Growthpoint stock and get a much broader diversification.

But, if you look at the business, clearly 75% of our net property income effectively comes from the South African portfolio, which is shopping centres. We’ve got about 58 shopping centres that stand on 1.4 million square metres, and are worth about R30 billion. And we’ve also got our office business, which is about 182 properties worth about R34 billion. We’ve also got an industrial portfolio, which stands on 2.3 million square metres and has a value of over R12.5 billion. So a very diversified South African portfolio.

And, as a result of that, you are getting swings and roundabouts in the different sectors. But the South African context is a difficult one at the moment. In a certain way the property game is a confidence business in that if you are to get long leases from clients you need confidence from the people signing those leases. And at this stage it’s a little difficult. We have done reasonably well in that business, and we’ve been able to grow the actual income in that business.

Of the two businesses that performed particularly well for us, first is the Victoria & Alfred Waterfront. That is probably today Africa’s most valuable property, and certainly the most visited. We had close to 25 million people passing through the V&A in the past year, and certainly the growth there has been good. The V&A contributes today 8.7% of our distributable earnings and that certainly is set to grow as we develop out the asset, which has still got quite a bit of development potential. The market certainly does not resemble the rest of South Africa in the V&A, where we’ve benefited from the strong Western Cape economy.

The other business that has done really well for us as well is Growthpoint Properties Australia, which is a company in which we own 65%-odd in Australia. They own offices and industrial warehousing all across Australia. They’ve grown their distributions just under 4% – 3.9% for the period. We’ve also been able to grow that business very nicely. Today the company is worth R31 billion-odd. So also very nicely diversified and certainly driving the bottom line.

SIKI MGABADELI:  On that fund, ja. Just with that particular business, we’ve seen the rand strengthening quite a bit, surprisingly for some of us. Has that had any translation impact at all on your earnings?

ESTIENNE DE KLERK:  Yes, certainly on the balance sheet. Just on the asset side it probably had a R3.4 billion negative swing – probably net-net on the balance sheet about R1.3 billion-odd negative. In saying that, on the income statement side what we have managed to do is we’ve got a progressive currency hedging policy, so for certainty our earnings out of Australia we have like a rolling hedging profile. So we try and hedge out the dollars that we are selling to bring back into rand, and those rands we are paying to our investors. And we’ve hedged at sort of let’s call it higher historic levels. Clearly, as we go forward, certainly in our prospects, it’s something that we highlight as a bit of a threat. To the extent that we haven’t fully hedged those distributions coming back from Australia, it definitely will have a negative impact on the business.

SIKI MGABADELI:  Alright, we’ll leave it there. Thanks for your time. Estienne de Klerk is MD of Growthpoint Properties.

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