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Cape Town - Growthpoint Properties, the largest South African primary listed reit (real estate investment trust), boosted its annual distributions to shareholders by 19.8%, for the first time going over R5bn for the year.
For the financial year to the end of June 2016, the company posted distribution growth of 6%, increased its gross revenue by 26.1% and raised its asset value to R112.5bn.
At a shareholder briefing in Cape Town on Friday, CEO Norbert Sasse said what he regards as a solid set of results are due to a good performance from Growthpoint’s investments as a whole, as a result of maintaining high occupancy levels, achieving strong leasing results, and keeping costs well contained.
This is despite what he described as a tough year within the context of volatile financial markets and an increasing interest rate environment. He also repeatedly mentioned that competition in the reit space has never been as fierce as at the moment. He even went so far as to express concern about international companies coming to list in the JSE, thus impacting competition for what he describes as a finite pool of funds available in the country for listed real estate companies.
“Growthpoint has delivered a positive performance in a tough year. Volatile financial markets, an increasing interest rate environment, depressed local and global growth and soft property demand dynamics created an extremely difficult operating environment," said Sasse.
He also expressed concern about a possible sovereign ratings downgrade of SA and the impact that could have on the listed real estate sector in the country. Currently Growthpoint has a AAA.za national scale rating from Moody's - one of only two companies in SA with such a rating.\
Technology
Technology is another subject raised by Sasse.
"The pace of technological innovation is amazing. The technology revolution is happening faster than imagined and making a bigger impact than imagined. So, we must see how this will impact our business over the next five years or so," said Sasse.
Growthpoint owns and manages a diversified portfolio of 526 property assets spanning 6.8 million square metres. This includes 467 properties in SA valued at R73.8bn, 58 properties in Australia valued at R30.9bn through its investment in Growthpoint Properties Australia (GOZ) and a 50% interest in the properties at the V&A Waterfront in Cape Town, valued at R7.8bn.
Growing distributions from Growthpoint’s 65.5% holding in GOZ impacted results positively, amplified by slightly improved exchange rates and effective currency hedging. Significantly improved performance from the V&A Waterfront also had a positive effect.
In Growthpoint's view, its SA balance sheet remains well capitalised with gearing at conservative levels, decreasing from 32.1% to 30.5%. Some 86.6% of Growthpoint’s debt is fixed for 3.4 years on average.
Growthpoint’s South African portfolio contributed 75.9% to its total distributable income and, with the acquired Acucap portfolio included for its first full year, it achieved revenue growth of 28.7%.
Occupancy levels of 94.3% were maintained in its SA portfolio.
Growthpoint invested R2.4bn in developments and improvements to its SA portfolio. It also acquired R840.5m of assets, disposed of R1.1bn of non-core properties, and committed R1.7bn to future developments.
V&A Waterfront
Revenue from the V&A Waterfront contributed 8.5% to Growthpoint’s total distributable income, and was up 16.6% from the prior year. Its improved performance was driven by a 13% increase in trading densities and 22% year-on-year sales growth from retail owing to the weaker rand, increased tourism and an enhanced tenant mix. Overall vacancies reduced further from 2.6% to 1.4% and it achieved a total letting success rate of 90.3%.
Australia
GOZ had a great year, according to Sasse, delivering a 7.4% total return to shareholders on the Australian Stock Exchange. It is the best performing A-Reit over five years. Dividend contributions from GOZ grew 17.1% in rand compared to the 2014/15 financial year, with GOZ contributing 15.2% to Growthpoint’s total distributable income.
GOZ made R3.4bn of acquisitions during the year, invested R441.3m in development and capital projects and committed a further R496.7m to investments.
Outlook
Growthpoint expects stable property fundamentals within SA's weak macroeconomic environment, limited growth and the potential for a sovereign debt downgrade.
Yet, Sasse emphasised that even in the face of this poor outlook, the company sees strong strategic prospects for its business.
“This presents the opportunity to grow the contributions to Growthpoint’s non-SA distributable income from our internationalisation strategy, funds management and through trading and development,” said Sasse.
“And GOZ represents seven years of experience growing a successful business in a first-world economy. It has done well for us as another stable, good-quality income stream.”
As for the V&A Waterfront, he said its strong property dynamics support continued growth, with significant development in the Silo and Canal precincts districts converting to revenue-generating investments.
“Here, we have a good development pipeline as well as the opportunity to acquire more bulk,” said Sasse.
Growthpoint, therefore, expects to achieve dividend growth for the coming year at a similar level as financial year 2015/16.
