Growthpoint Properties, a bellwether of SA’s commercial real-estate market, reported a 5% increase in its interim dividend to 62c per share on Wednesday, as the operating environment in the retail and industrial sectors gained momentum.
But its office market was still in the doldrums, with vacancies rising to a record 21.2% in the six months to December, from 19.9% as at June 2021.
The company said infrastructure investments from the government would go a long way in improving investor confidence, which is currently low. Unemployment remains very high, and although big and small companies are returning to the office, which bodes well for its operations and demand for space, it’s not enough to drive investor appetite.
“Our SA business still faces a lot of pressure due to a struggling economy, and performance within our portfolios has not reached pre-Covid-19 levels,” said group CEO Norbert Sasse.
Addressing the media following the company’s interim results for the period ending December 31, Sasse said the priority remains the protection of the company’s balance sheet and liquidity position.
Sasse said the board is satisfied with the progress made in further bolstering the balance sheet during the first half of the 2022 financial year through various initiatives, including R1.0bn of asset sales, taking the total of properties sold in SA to R8.6bn since 2017, and R524.6m (before income tax) cash retained as a result of lowering the dividend payout ratio to 80%.
During the reporting period, its property assets grew by 7.7% to R164.4bn from R152.8bn during the full-year results in 2021. The contribution to distributable income from trading and development was R76m for the half-year. Growthpoint invested R480.5m in development and capex in SA and has R425.8m of capital commitments.
“We are seeing encouraging signs of improvement, although it is too early to say that we have turned a corner while the environment remains uncertain and SA property fundamentals weak,” he said.
In SA, the company will continue to sell non-core assets, and will explore acquisitions that make financial sense.
Sasse said they will continue to pursue new revenue streams via Growthpoint Investment Partners (formerly the fund’s management business), which has three unlisted funds and R15bn of assets under management.
It will also focus on investing offshore in markets where the company operates, adding that Australia remains its core market having performed well during the pandemic.
Growthpoint is the largest primary JSE-listed real estate invest trust (Reit), with assets in SA and the rest of Africa, Australia, the UK and Eastern Europe. In SA, it owns a diversified portfolio of 407 retail, office and industrial properties valued at R64.7bn.
The company holds a 50% interest in the V&A Waterfront in Cape Town. Its share of property assets, valued at R8.9bn, improved recorded a 62% increase in net property income for the period.
Growthpoint’s majority assets are in SA, both by earnings before interest and taxes (72%) and by market value of property assets (56.9%).
Evan Robins, portfolio manager at Old Mutual Investment Group, said the company is liquid and professionally managed. It’s not an expensive stock hence it has the opportunity to work on some elements that aren’t appreciated, while the V&A Waterfront — which relies on international tourism — still needs to improve following the worst periods of the pandemic.
“Size makes it a victim of the economy and hard to manoeuvre, meaning holding of offices in nodes under the most pressure and owning some shopping centres that are facing economic headwinds,” said Robins.
Naeem Tilly, portfolio manager and head of research at Sesfikile Capital told Business Day that Growthpoint’s strength lies in its diversification across sectors and regions.
Weakness in its domestic commercial real estate portfolio is offset by its investment in Growthpoint Australia, where strong fundamentals in the Australian office and industrial sectors are leading to rental growth and valuation upside.
“Its asset management business provides income diversification without needing a significant capital investment. Growthpoint is attractively valued at a 37% discount to net asset value and investors can expect about a 10% dividend yield,” said Tilly.
Estienne de Klerk, SA CEO for Growthpoint, said the macroeconomic environment, coupled with last year’s domestic unrest, remains deeply concerning.
“The effects of the pandemic, along with a depressed economy have had a negative effect on three domestic sectors where property fundamentals are expected to remain under pressure, notwithstanding the emergence of some positive indicators in the retail and industrial sectors,” he said.
Vacancies in the SA portfolio reduced to 10.5% over six months from 11.6% for the full year in 2021. Although the lease renewal rate was higher at 77.3% during the period, this was achieved at the expense of rental growth, adding that from an earnings perspective, this was concerning.
The retail portfolio experienced increased leasing activity as retailers continued to restructure their portfolios and right-size their stores.
With shoppers returning to the malls, retail sales rose by 7%, with smaller community and convenience centres leading the rebound, value retail holding favour and shopper basket size has increased as turnovers have recovered faster than foot count levels, said De Klerk.
Update: March 16 2022
This story has been updated with additional information.
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