Growthpoint Properties reports 6,1% distribution growth to investors

Norbert Sasse, CEO of Growthpoint Properties.

Growthpoint Properties Limited today announced 6.1% growth in distributions, to 139,0 cents per linked unit, for the financial year ended 30 June 2012, continuing its record of delivering distribution growth to its investors.

CEO of Growthpoint Properties Norbert Sasse attributes this positive performance to improved portfolio occupancy levels, exacting cost and arrears management, and the distribution enhancing performance of Growthpoint Properties Australia (GOZ) in which Growthpoint has a 64.5% holding.

“Notwithstanding sluggish local, and uncertain global, economic conditions, we are pleased to report positive performance,” says Sasse. Growthpoint’s distributions are based on sustainable rental income. It does not distribute capital profits.

Growthpoint Properties is the largest South African listed property company and is included in the JSE ALSI Top 40 Companies Index, with a market capitalisation of R40,1 billion at 30 June 2012. For the first time ever, Growthpoint’s property assets exceed R50,0 billion during the year. At year end, its combined property assets were valued at R53,1 billion.

Growthpoint is a fully-integrated internally-managed property company. Its quality portfolio of 403 geographically and sectoraly diverse properties in SA is valued at R35,0 billion and, through its subsidiary GOZ, it has a stake in 41 properties in Australia which are valued at R13,1 billion. It also has a 50% interest in the V&A Waterfront with its investment valued at R5,0 billion.

Investors can expect equally robust performance in the coming year. “Overall growth in distribution per linked unit for the year to June 2013 is expected to be in line with that achieved this year” says Sasse.

When considering prospects for local growth Sasse points out business confidence in SA is at a 12-year low. “GDP growth prospects continue to be revised lower on a weaker global economic outlook, particularly in the Eurozone,” notes Sasse. “Property fundamentals remain solid, but like-for-like net property income growth will come under pressure with little likelihood of consolidated vacancies reducing much further than the present 4% (2011: 5%) in Growthpoint’s SA portfolio.”

Growthpoint’s SA portfolio arrears are near record lows, at 6.5% of total monthly collectables, and its property expense ratio, already below 25.0%, is unlikely to reduce further.

“Early signs of positive yield spread are emerging following the recent 0.5% cut in interest rates, the strong performance in the listed property sector, and the Growthpoint share price in particular,” says Sasse

Growthpoint’s linked unit price increased during the year from R18.31 per linked unit to R23,00 per linked unit, resulting in a 25.6% capital return. Together with the 139,0 cents distribution per linked unit, this results in a 33.2% total return to its investors for the year.

The SA office sector is set to remain the weakest, with little growth in overall demand. Despite this, vacancies in Growthpoint’s office portfolio declined, with aggressive leasing strategies, from 8.1% to 5.8% during the year, significantly outperforming the national average for Q2:2012 of 10.5%.

With its SA retail and industrial portfolio’s almost fully let and performing optimally, Growthpoint has targeted increased developments to grow its SA portfolio, and set development parameters for all its local sectors. Growthpoint now has a development pipeline of R1,6 billion.

Sasse explains that besides growth via acquisitions, developments offer yields of up to 2% higher than acquisitions of complete, fully-tenanted properties. “Development risks are mitigated and, in this market, we are confident that this is a valuable strategy for portfolio and distribution growth,” says Sasse.

During the year Growthpoint acquired properties to the value of R574,5 million. The company disposed of 23 non-core properties for a total R523,3 million, realising a collective profit on cost of R128,7 million. Following its 2011 Brooklyn Mall and Design Square asset swap, Growthpoint sold a further 7.0% in the joint asset to its partner for R120,3 million, for a profit on cost of R54,9 million.

GOZ delivered stellar investment performance for Growthpoint with a 37.1% return on investment. During the year Growthpoint invested a further R1,5 billion in GOZ in two rights issues, where Growthpoint took up its full options, growing its total investment to R3,1 billion. Growthpoint’s 64.5% holding in GOZ has a market value of R4,3 billion.

“GOZ remains a priority for Growthpoint in the present environment where transactions and yields in the Australian market surpass many local opportunities, representing a better use of capital,” says Sasse. He adds that GOZ forecasts distributable profit for the coming year of between AUD19.4 and AUD19.8 cents per stapled security, of which it will distribute AUD18.3 cents per stapled security. This represents 4% growth on the current year in AUD terms.

This is the first full year the V&A Waterfront has contributed to Growthpoint’s income. Growthpoint bought 50% of the V&A Waterfront in Cape Town for R4,9 billion in partnership with the PIC on behalf of the GEPF and took transfer of the property in June 2011. This prime asset performed in line with originally projected levels, with hospitality and leisure properties however remaining under pressure.

Looking to secure and grow rental streams at the V&A Waterfront, The Clock Tower precinct redevelopment was completed and is around 73% let, the new 18,100m² Allan Gray head office development should be finished next year (September 2013) and the Food Court refurbishment will be completed in early November 2012. Sasse confirms plans are in place to realise further performance and development potential, and net distributable income from V&A Waterfront should increase by some 7% in the coming year.

Growthpoint’s property assets continue to benefit from its strong financial structures. In July 2011 Growthpoint successfully completed a R1,8 billion equity raising, which was used to repay R2,0 billion CMBS notes. It also raised R959,9 million through its Distribution Re-Investment Plan (“DRIP”).

Growthpoint increased its corporate bond programme by R1,5 billion, increasing unsecured debt to 39% of its total South African debt. The added equity raised in July 2011 and via the DRIP, reduced the SA loan-to-value (LTV) ratio from 37,9% in the prior year to 33,9%. Growthpoint’s SA fixed debt increased from 77.1% at June 2011 to 83.1% with its weighted average interest rate for borrowings at 9.5%.

“Growthpoint enjoys good access to liquidity, from both bond and bank markets. The bond market is providing cheaper funding in the current climate. Access to conventional bank debt funding, and its cost, will become more challenging for the industry,” says Sasse.

Growthpoint Properties’ continued inclusion in the JSE’s Socially Responsible Investment Index (SRI Index), announced in December 2011, follows its positive environmental, social and economic sustainability practices and corporate governance. This is the third consecutive year of Growthpoint’s inclusion in the JSE SRI Index. Recognising the excellent quality of its market intelligence, the Investment Analysts Society (IAS) awarded Growthpoint with its “Best Reporting and Communications” award in the “Financial – Financial Services” sector.