Given the impact of high interest rates across its local and international businesses, JSE-listed Growthpoint Properties expects its distributable income per share (DIPS) to decline by 10% to 12% for the financial year to end on June 30.

Despite achieving “robust” operational results across its local and international investments for the six-month period to December 31, 2023, high interest rates globally have impacted on property values, equity and debt markets, and capitalisation and discount rates.

This has thus affected the financial performance of Growthpoint’s direct and indirect investments.

Growthpoint will distribute R2-billion, representing a half-year dividend per share (DPS) of 58.8c, 8.6% down from that of the six months ended December 31, 2022, based on a payout ratio of 82.5% of distributable income of R2.4-billion.

The company retained R422.5-million before taxes to fund capital expenditure and developments together with the proceeds from property disposals. 

“We endeavour to maintain a payout ratio of 82.5%,” it says, noting that DIPS decreased by 8.6% to 71.2c, compared with 77.9c in the prior comparable period.

The company notes that high interest rates continue to negatively impact on distributable income, with total cost of funding having increased by 16.9% to R2.13-billion for the six months ended December 31, 2023, as opposed to the prior comparable period of R1.82-billion.

“Growthpoint did well to deliver strong, operational outcomes and ongoing strategic progress. Despite unprecedented challenges in our markets, including low domestic growth, volatile global markets caused by interest rates that remain higher for longer and rising geopolitical tensions, our results continue to reflect the resilience and diversification of our business and our quality earnings,” says Growthpoint Group CEO Norbert Sasse.  

Growthpoint notes that interest rates, globally and domestically, are expected to be higher for longer, impacting on both its domestic operations and offshore investments.

It explains that the second half of this financial year presents further domestic volatility with the South African national elections on May 29, coupled with ongoing loadshedding and infrastructure deterioration. Global political uncertainty also remains a concern.

“In evaluating our performance expectation in South Africa for the second half of the 2024 financial year, it is crucial to recognise the inherent link of our business to the country’s economic wellbeing. Our strategic approach will be guided by our priorities: safeguarding the strength of our balance sheet and fulfilling our commitments towards environmental, social and governance objectives.

“To this end, our focus will remain on optimising our South African portfolio, with emphasis placed on capital allocation, proactive tenant retention strategies, strategic repositioning efforts, fostering green building initiatives, leveraging renewable energy solutions, identifying growth-centric regions and cost management practices,” says Growthpoint.

In line with Growthpoint’s vision “to be a leading international property company providing space to thrive,” the company’s strategy incorporates the streamlining and optimisation of the South African portfolio, growing revenue from Growthpoint Investment Partners, and international expansion.

The company’s total revenue increased by 4% to R7.1-billion, compared with R6.8-billion in the prior comparable period, with operating profit having increased by 0.2% to R4.5-billion.

Meanwhile, Growthpoint anticipates subdued growth within the retail sector, as retailers are impacted on by the financial strain faced by the South African consumer, compounded by the challenges of loadshedding.

Moreover, the office sector continues to grapple with oversupply issues in Gauteng, and until a tangible growth trajectory is observed within the local economy, the company posits that businesses are likely to face persisting challenges.

Offices in KwaZulu-Natal and the Western Cape are, however, showing signs of improvement.

The industrial sector, benefiting from a more balanced supply-demand dynamic, is expected to demonstrate better performance compared to its counterparts.

“We also anticipate continued outperformance from KwaZulu-Natal and the Western Cape, surpassing the performance of Gauteng,” the company notes.

“The improving metrics from our South African business are encouraging, led by the industrial and retail sectors.

“We will continue optimising this portfolio, including increasing our exposure to better-performing real estate sectors and regions and leading the transition to renewable energy in the same way that Growthpoint championed certified green building in South Africa. This business is underpinned by effective strategies delivered by a skilled team of people and partners,” adds Sasse. 

The South African business, representing 53.7% of total property assets, is diversified across the retail, office, industrial, and trading and development sectors, located in economic nodes in the major metropolitan areas. It also includes a 50% investment in the V&A Waterfront.

Growthpoint describes the V&A Waterfront, in the Western Cape, as a “standout performer” driven by the positive impact of increased tourism with distributable income increasing by 13.7% to R380.7-million.

V&A retail sales increased by 18% in the period and trading densities increased by 21% on a rolling 12-month basis – more than double the MSCI super-regional shopping centre benchmark, says Growthpoint.

“The V&A has exceeded expectations for [the year ended December 31, 2023] as a result of increased domestic and international tourism and is expected to continue to perform well, albeit off a high base, with high single-digit income growth expected for the rest of the year,” it expresses.

In terms of its 2050 carbon neutral pathway, Growthpoint entered into a milestone power purchase agreement with Etana Energy for the purchase of 195 GWh/y renewable energy, representing 32% of total current yearly electricity consumption, effective July 1, 2025.

“While our diversified portfolio and income streams position us defensively for the 2024 financial year, the loan-to-value trajectory is upwards in the short to medium term. As such we will focus on strategic initiatives to preserve liquidity and balance sheet strength in the long term.”