JSE-listed real estate investment trust Growthpoint Properties says the deterioration in property fundamentals and key performance indicators (KPIs) will have a profoundly negative impact on its financial results in the last quarter of its financial year ending June 30.

This follows after it reported a healthy set of interim results for the six months ended December 31, 2019.

However, although the company does not expect to start the 2021 financial year at pre-Covid-19 levels, early indications are that “the worst is behind us”, the company says.

The weak macroeconomic environment and the unexpected pressures of the Covid-19 lockdown were affecting many of the company’s tenants. Total arrears deteriorated from R106.7-million in the interim period to R114-million currently.

“We expect to end the financial year with unusually high arrear levels owing to tenants not having paid their rent during the lockdown period and the impact of the process whereby we were offering relief to our tenants through rent reductions and deferments,” the company explains.

The company adds that its overall renewal success rate dropped from 67.6% at the end of the interim period to 66% currently, with retail and industrial sectors contributing to the downward trend and office showing some improvement.

Attempting to maintain and improve on its occupancy levels came at a price for Growthpoint, with weighted renewal reversions at an overall -6.4%, which is a further decline from -5.6% as at the end of December 31, 2019.

Growthpoint states that the situation remains fluid and that it is difficult to quantify the full impact of the economic conditions on the company’s customer base at this stage.

The company finds itself in similar situations of profit guidance uncertainty with its international investments, in Australia, Romania, Poland and the UK, as well as in Ghana, Nigeria and Zambia.

The value of Growthpoint’s property portfolio is split between its South African assets at 64.8% and its international assets at 35.2%.

Growthpoint says its balance sheet strength and cash flow management should stand it in good stead during this unprecedented time, while the board is deliberating all options going forward, including reducing the dividend payout ratio.

The company continues to assist its most effected tenants, mainly small, medium-sized and microenterprises, with total rental relief granted for April, May and June to date of R388-million, with average collections of 75% over the three months.

“Our approach to assisting tenants has been positive for our relationships where we have been able to amicably agree on relief packages without having to endure costly legal processes,” the company says.

As a result of the company’s weakening KPIs and the Covid-19 pandemic overall, all nonessential capital expenditure has been curtailed.

The company delivered a 0.2% year-on-year growth in its distributions per share, declaring an interim dividend of 106c apiece, in the six months under review. 

Distributable income increased by R67-million to R3.2-billion for the reporting period, mostly as a result of international contributions.

As at December 31, 2019, the company’s vacancy rate was 6.3%, up from 5.8% in the prior interim period.

“We remain dedicated to building a long-term sustainable business. Growthpoint has always had a strong balance sheet with internal risk management structures in place to protect capital for all stakeholders.

“We have also always benefited from good access to liquidity through our relationships with all the major South African banks and have enjoyed the privilege of being a preferred credit name in the bond market. Growthpoint was the second-largest corporate bond issuer in South Africa in 2019,” the company states.

Since the beginning of the year, the company issued a further R1-billion of bonds through a private placement and secured R1.6-billion of new loans from the banks to refinance loans and to fund capital expenditure that would have previously been funded from operational cash flows.

The company is at an advanced stage of concluding a private placement of R750-million in unsecured corporate paper in the bond market, with R100-million for one year and R650-million for three years.

Growthpoint’s nominal debt at the end of March this year was R43.3-billion, while cash and unused facilities were R2-billion at the end of May.