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Sep 09, 2011

The market remains tough, Growthpoint warns

Growthpoint Properties CEO Norbert Sasse discusses the company's financial results. Cameraperson: Nicholas Boyd. Editing: Darlene Creamer.
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JSE-listed property company Growthpoint Properties says that the market remains tough, particularly in the office sector.
“There is lacklustre demand for office space, which makes it competitive among landlords, where everybody fights for the same tenants and will to do anything to keep the tenants,” Growthpoint Properties CEO Norbert Sasse told Engineering News on the sidelines of the company’s result presentation for the financial year ended June 30.

He added that, despite the difficult local economic and financial conditions and an uncertain outlook for global economic growth, the company is pleased with the positive performance.

“Our portfolio occupancy was strengthened during the year, with the overall vacancy level coming down from 6.4% to 5%. The successful cutback in vacancies has been balanced against office space in the context of a gruelling economic climate with low gross domestic product growth and increasing unemployment figures.”
He argued that, while Growthpoint’s vacancies and arrears declined during the financial year, this did not appear to be a common trend across the industry or the listed property sector as a whole, since the retail and industrial property sectors are holding steady and showing some resilience.
“Despite relatively weak overall market conditions, we have been successful in renewing 65.8% of all leases that expired during the financial year. These have reflected weighted average increases in rentals on renewal of 3.1%. We have noted that clients are generally seeking shorter leases, reflecting uncertainty on the outlook of the South African and global economies.”

Sasse cited the acquisition of the V&A Waterfront, an 8.1% distribution growth and Growthpoint Australia’s performance as highlights for the year.

He noted that Growthpoint’s long-term expectations of the V&A Waterfront are for superior returns generated by completing all development opportunities.

“The V&A Waterfront transaction has given Growthpoint development exposure to what is, arguably, the most valuable development bulk and rights in South Africa.”

He confirmed the company’s immediate objective was to formulate an overall precinct master plan with the Government Employees Pension Fund to ensure the ability to take the best advantage of opportunities and demand in changing markets, as well as maximising management structures.

In terms of double-digit growth, Sasse cautioned that this would only be seen in “the next two-odd years, but is dependent on economic growth”.

He pointed out that, for listed companies to achieve double digits, they need to decrease their vacancies and reduce their finance costs, and rental levels on renewals would need to grow.

Growthpoints has about R400-million worth of developments on the cards and an acquisition of about R300-million.

“Ongoing investment in our portfolio through refurbishments, redevelopments and capital expenditure as well as active asset management also underpins long-term capital appreciation. Prospects are good for a positive growth in distribution of 3% to 7% in Australia, next year,” concluded Sasse.

Edited by: Martin Zhuwakinyu
Creamer Media Senior Deputy Editor
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