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Growthpoint’s debt surges to almost R70bn

But group says it still has a strong balance sheet to weather the Covid-19 fallout.
The group’s SA portfolio of 440 retail, office, industrial and healthcare properties was devalued by 8.8% or R7.1bn during the financial year. Image: Moneyweb

Property heavyweight Growthpoint has seen its debt levels spike 41.5% from around R49.5 billion to just shy of R70 billion by the end of its financial year to June 30, its latest results published on Wednesday show.

This has contributed to the group’s loan-to-value ratio also surging – to 43.9% from a much more palatable 36.7% for its 2019 financial year.

The impact of the Covid-19 pandemic on income streams and property valuations is a huge headache for Growthpoint and many of its peers. However, for Growthpoint its acquisition of a majority stake in UK retail fund Capital & Regional for R2.9 billion last December has also contributed to the group’s much higher debt and loan-to-value or LTV.

Pandemic sees Growthpoint’s distributable income plunge over 16%
Growthpoint is not overpaying for Capital & Regional, says Sasse

To put Growthpoint’s R70 billion debt in context, it is worth noting that the group’s South African property portfolio is worth R73.4 billion (excluding its 50% stake in the V&A Waterfront, which is valued R7.16 billion and is treated as an equity investment).

Growthpoint’s full-year results presentation reveals that overall finance costs have consequently also surged 19.3%, from around R2.6 billion at the end of its 2019 financial year to R3.1 billion in 2020.

Despite the spike in its debt and LTV, Growthpoint Group CEO Norbert Sasse, speaking during a results media webcast, maintains that the property fund’s balance sheet is strong and will enable it to weather the Covid-19 crunch.

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

Read: Edgars store closed at V&A Waterfront

The group has opted to defer payment of its final dividend for the year – to December at the latest. However, it may pay out 75% of this and withhold the rest to shore up its balance sheet amid pandemic pressure. Most of its peers are either withholding dividends or deferring payouts.

“We at all times seek to strike a balance between a conservatively managed and sustainable business and the interest of our investors in optimising distributions,” said Sasse.

“While no final dividend has been declared for FY20, subject to there being no material regulatory changes or market disruptions which may have a substantially negative impact on our overall financial position between the date of publication of our results, and the date of declaration of the final dividend for FY20, the Growthpoint board is considering declaring a final dividend based on a payout ratio of not less than 75% of distributable income for FY20 which will ensure compliance with current Reit [real estate investment trust] legislation,” he noted.

This is the first time in 16 years that Growthpoint has been unable to deliver a growing dividend to its shareholders.

Sasse said the results were significantly impacted by Covid-19 lockdown restrictions, largely in the final quarter of Growthpoint’s financial year to the end of June. However, he stressed that South Africa’s economy was already in recession before Covid-19.

“Never before has Growthpoint experienced such a challenging operating environment. Following a detailed strategic review of short and long-term strategies, the Growthpoint board is prioritising liquidity and balance sheet strength in the short term, considering the weak property fundamentals in South Africa in particular, and the current cycle of falling asset values and rising gearing levels,” he said.

Growthpoint warns of up to 20% decline in SA property values
Listed property sector languishing 40% lower this year

Growthpoint has a South African, Australian, British and Eastern European (Poland and Romania) property portfolio, held directly or via equity investments, worth more than R160 billion.

The group’s South African portfolio of 440 retail, office, industrial and healthcare properties was devalued by 8.8% or R7.1 billion during the financial year.

Even Growthpoint’s local trophy asset, the V&A Waterfront suffered a devaluation, with the group’s stake declining by R420 million.

Sasse conceded that Growthpoint’s overall LTV was also impacted by the South African portfolio devaluation, however, he said that the group’s Capital & Regional stake also took a significant knock.

With the UK economy effectively taking a double-whammy hit from Brexit and the Covid-19 fallout, he noted that Growthpoint’s 52% Capital & Regional stake is currently valued at R1.1 billion.

“Growthpoint’s consolidated LTV increased during the year to 43.9%. The higher figure is partly due to Growthpoint’s early adoption of the second edition of the SA Reit [Association] Best Practice Reporting guidelines, which includes a new standard calculation for SA Reit LTV that increases this number for Growthpoint by 1.7%. Using the previous calculation basis, Growthpoint’s LTV is 42.2%.”

Keillen Ndlovu, Stanlib’s head of listed property funds, tells Moneyweb that both the drop in distributable income and property values at Growthpoint were “pretty much in line with expectations”.

Read: Vukile boss plays down pandemic pressure on property valuations

He adds: “Given the challenges, changes and uncertainty, commercial property values will continue to come under pressure over the short-to-medium term… However, the listed property sector is trading at around 50% below its net asset values, which means the devaluations have already been priced in.”

Ndlovu notes that while Growthpoint’s LTV has spiked, it is not in breach of any debt covenant levels.

“The LTVs of a number of major SA Reits are likely to rise to between 45% and 50%… Many are looking to sell assets, but it’s not easy in this environment. Raising equity is also not ideal, thus the most viable option is to retain income to try to limit increased debt and reinforce balance sheets.”

Growthpoint share price in the past year

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The cautionary tale off the 2008 crisis was that there are limits to using this tool for determining appraisal values. The risk is getting into a loop of never ending higher than actual appraisal values. Just a slight tweak to the cap rate would make the current LTV look closer to 60% or more.

No one should be quoting LTV without also quoting LTC.

Is there one property fund thats actually liquid?

It begs the question whether or not the high earners in the company actually know what they’re doing?

It’s easy to spend and lose other people’s money then to use external factors as an excuse for a dismal performance

You cannot keep building lego blocks if you don’t secure them, one on top of the other lest the whole pile will come crashing down

It’s called gearing

Stop acquiring and focus on what you’ve got

Point in case HighVeld Syndication (Orthotouch) the Georgiou’s

Enough is never enough until you hit a brick wall and the investors are collateral damage..The one’s who stand to lose the most, if not everything

Ummmm, we will talk again in a month or 2………………

Goodness me, they paid R2,9B in December for a property fund that is now worth R1.1B? Are they sure they bought a property fund and not a luxury sedan? We all knew Brexit was coming, actually it was already here in December. That’s literally money down the drain.

Debt – the silent killer of both business and ‘investors’.

At least the directors got rich.

‘’He has the courage of the opinion of others’’

James McNeill Whistler (1834-1903)

Property Stocks after the latest rounds of stock market crashes – fanks, but no fanks, I just don’t have the courage! The dramatic drop of the subprime mortgage crisis left many dizzy, and shaken, and feeling like they’d gotten on the wrong ride.

But many experts examining the event after the fact actually believe the first domino fell in early 2007 when Freddie Mac backed away from buying risky subprime mortgages and a leading subprime mortgage lender, New Century Financial Corporation, filed for bankruptcy.

Are you allowed to say another SA company sending money offshore with no interest in what they’re buying ?

End of comments.





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