JSE-listed real estate investment trust (Reit) Growthpoint Properties on Wednesday reported distribution growth of 6.1% for the six months to December 31, delivering performance comfortably in line with market guidance.

Growthpoint achieved an increase in total distributable income of 10% from its prior half-year and improved portfolio vacancies from 5.7% to 5.4%, while boosting the value of its property assets to over R120-billion.

Growthpoint CEO Norbert Sasse attributed the positive distribution growth to the continued performance of its South African property portfolio, a strong contribution from its V&A Waterfront investment, and growing distributions from its 64.3% holding in Growthpoint Australia (GOZ), which was enhanced by a successful currency hedging strategy.

While highlighting that the solid performance would continue in the year ahead, the company was still facing a persistently challenging domestic operating environment.

Speaking to Engineering News Online in a telephone interview, Sasse noted that, although Growthpoint already had a diversified portfolio, which should enable it to weather the economic storm, the company would continue to focus on diversifying its funding sources.

Growthpoint recorded a 48.8% increase in its unsecured debt during the period, while also seeing a 59.5%, or R2.2-billion, increase in bonds issued, with more banks holding Growthpoint bonds as high-quality liquid assets.

It also continued to use cross currency interest rate swaps to fund further investment into GOZ, and has now introduced euro debt and euro cross currency interest rate swaps for its European investment. GOZ contributed 15.9% to Growthpoint’s total distributable income and forecasts growing its distributions per share by 4.9% for this year.

However, even with its successful currency hedging strategy, the strengthening rand to Australian dollar could have a negative impact on the unhedged distributions received from GOZ.

Meanwhile, Growthpoint also increased focus on its internationalisation strategy through its R2.8-billion investment into Aim-listed Globalworth Real Estate Investment, which focuses on Romania and Bucharest, and expanded its investment into GOZ, as well as growing its funds management business to launch a healthcare real estate fund.

“We are looking to effectively double the contribution that offshore property exposure has to our bottom line, which at the moment is around 15%,” said Sasse.

THE LOCAL REIT MARKET
On Wednesday, the JSE reported that five new Reits had listed on the stock exchange during 2016, a trend it hopes will continue to strengthen this year. However, Sasse was not as optimistic.

He noted that “a whole bunch of” foreign Reits listed on the JSE in 2016, which has a net negative effect on South African-listed property funds.

“We are all competing for capital and there is only so much money for property . . . with not a lot of new money flowing into the sector . . . and with the biggest Reits here being the most liquid as well [such as Growthpoint], those are the ones that are most negatively affected,” he said, noting that it was easier to sell Growthpoint or Redefine shares and invest in other Reits.

Over the period, an average of R3.8-billion in Growthpoint shares were traded a month, making this the most liquid and tradable way to own commercial property in South Africa.