Business

Growthpoint targets increasing its offshore exposure

JSE-listed real estate investment trust (Reit) Growthpoint Properties is planning to increase its offshore exposure.

Growthpoint Properties Group CEO Norbert Sasse said on Wednesday its target is to own 50% of the book value of its property assets offshore and earn 40% of its earnings before interest and tax (Ebit) from international investments.

Read: Growthpoint struggles to refuel generators amid power cuts

Sasse said currently 43.5% of Growthpoint’s property assets by book value is located offshore, with 28.4% of Ebit earned offshore.

“Ultimately what we are striving to do with the offshore strategy is to find better growth markets that present better growth opportunities than domestic [South Africa].

“Typically high growth markets are more emerging markets, but obviously investing in emerging markets comes with a lot more risk.

“We are trying to find markets where we are taking less risk than what we have in South Africa, but where we can generate higher returns, preferably in hard currency,” he said.

However, Sasse said Growthpoint currently has capital constraints that will not permit it to rush off and spend another R10 billion offshore in the next six or 12 months.

Sasse said to achieve these targets in the short to medium term will probably involve incremental steps, such as its investment of a further R400 million in London Stock Exchange and JSE-listed UK Reit Capital & Regional (C&R) when Growthpoint had underwritten its rights issue.

He added that Growthpoint has sold some of its South African assets and as the valuation of these assets continues to decline, there will be a natural rebalancing and readjustment through a reduction of the group’s South African asset base.

Sasse said Growthpoint disposed of about R2.1 billion worth of assets in South Africa in the year to end-June 2022.

“If we cumulatively look at our disposals since 2017, we have sold just short of R10 billion worth of assets now, of which R4.7 billion were offices, R2.2 billion retail and R2 billion industrial,” he said.

Results

On Wednesday Growthpoint reported it had delivered a 13.9% increase in SA Reit funds from operations (FFO) of R5.3 billion and a 5.1% increase in distributable income per share (DIPS) of 155.6 cents for the year to end-June.

The total dividend per share (DPS) increased 8.4% to 128.4 cents.

Group property assets grew by 5.2% to R160.8 billion.

Net asset value per share improved by 6.7% to R21.58.

Sasse said most of the key metrics and these numbers have turned positive again and while the office portfolio is a problem and dragging the results down, “it’s not the end of the world” because of the diversification within the group.

Read:

V&A

He said key contributors to Growthpoint’s positive performance in the year to end-June were the V&A Waterfront and Growthpoint Australia, which produced its best-ever results.

Growthpoint MD Estienne de Klerk said the V&A Waterfront has made a spectacular recovery after almost halving its bottom line through the Covid-19 pandemic. The V&A is jointly owned with the Public Investment Corporation (PIC), which each owning 50%.

“The valuation is being maintained at R8.7 billion for our 50% share and trade is effectively back to pre-Covid-19 levels and in some areas are exceeding pre-Covid-19 levels.Tourist numbers have come back and the airports are back at 75% of foreign tourists, which obviously supports the visitor numbers significantly.

“The other thing that is very important for the precinct is the recovery in the hotels, which are running at 81% occupancy, which is a remarkable achievement, and the restaurants are close to normal,” he said.

De Klerk said they are hoping for a bumper Christmas season at the V&A Waterfront, adding that there is pent up demand for travel globally and additional flights have been laid on to Cape Town.

He added that Growthpoint is looking at the development of undeveloped bulk at the V&A Waterfront, with residential an integral part of this.

“At this stage we have not announced anything specific but a lot is being planned,” said De Klerk, adding that the V&A Waterfront has 603 000m2 of bulk, with about 480 000m2 of that bulk developed, leaving about 120 000m2 of undeveloped bulk.

He said there are signs of an improvement in the office sector, with vacancies in Growthpoint’s office portfolio declining from a peak of 22.4% to about 20.7%.

De Klerk said offices at the V&A Waterfront are “a totally different world”, with a vacancy factor of 2% to 3% through the darkest hour of the Covid-19 pandemic and now down to about 1.8%.

He said retail trading density has improved, which is what ultimately drives rental growth and supports existing rentals.

Vacancies in Growthpoint’s industrial portfolio improved from 9.4% to 5.7%.

Euro bond

In terms of liquidity, Sasse said Growthpoint must refinance its $425 million (about R6.9 billion) Euro bond in May 2023.

He said the international bond markets are not currently conducive to the issue of new bonds or the refinancing of existing bonds because of the poor pricing. The group’s assessment is that this is unlikely to improve and it has preemptively been putting liquidity in place to repay this bond instead of refinancing it.

The group had R10.3 billion worth of unutilised committed debt facilities at end-June plus an additional R1.5 billion of cash.

“The combination of those two is about R11.8 billion worth of liquidity available to the group, with …  about R7 billion earmarked to repay and settle that Euro bond if between now and May 2023 the bond markets don’t open up again and pricing doesn’t come down,” said Sasse.

Comment

Stanlib listed property analyst/portfolio manager Ahmed Motara said Growthpoint continues to maintain a defensive stance on the outlook, with management expecting “muted distributable income per share growth” for its 2023 financial year.

“We expect management is being cautious given the broader macroeconomic uncertainty and its not insignificant office exposure. We expect that the conservative outlook provided by Growthpoint is partially linked to its significant office exposure in South Africa, with 38% of the South African portfolio split by value comprising office.”

Motara added that the 2022 financial results did not disappoint market expectations, with loan to value (LTV) reducing to 38%, debt costs being well covered and dividends per share growing 5.1% year-on-year.

“The yield on the stock is not wholly unattractive at near 10.5%,” he said.

Shares in Growthpoint declined 0.69% on Wednesday to close at R13.01.

Listen: Growthpoint Properties CEO Estienne de Klerk discusses the FY results


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