JSE-listed Growthpoint Properties achieved a 5.4% growth in revenue and R5.5-billion in distributable income for the full year to June 30.

Taking additional new shares issued during the period into account, this translates to distributable income per share of 183.1c, which is 16% lower year-on-year.

Growthpoint declared a dividend of 106c for its half-year and has yet to announce a second-half dividend.

While no final dividend has been declared for the period, subject to there being no material regulatory changes or market disruptions, which may negatively impact the group’s overall financial position, the Growthpoint board is considering declaring a final dividend based on a pay-out ratio of not less than 75% of distributable income for this period.

This will ensure compliance with current real estate investment trust (Reit) legislation, Growthpoint CEO Norbert Sasse commented on September 9.

This is the first time in 16 years that Growthpoint has been unable to deliver a growing dividend to its shareholders, in a period where results were negatively impacted by the Covid-19 lockdown restrictions under the national state of emergency in response to the global pandemic.

The lockdown severely impacted the South African economy, which was already in recession owing to low growth.

Sasse noted that this was the most challenging operating environment the group had ever experienced.

Following a detailed strategic review of short and long-term strategies, the board is prioritising liquidity and balance sheet strength in the short term, considering the weak property fundamentals in South Africa in particular, and the current cycle of falling asset values and rising gearing levels.

This year, Growthpoint acquired a 52.1% investment in LSE-listed UK Reit Capital & Regional, which has a secondary listing on the JSE and owns a portfolio of seven community shopping centres valued at R14.8-billion.

Through its 29.4% investment in Aim-listed Globalworth Real Estate Investments (GWI) it owns an interest in 62 properties in Romania and Poland, of which Growthpoint’s share is valued at R17.2-billion.

Growthpoint’s consolidated South African Reit loan-to-value (LTV) increased during the year to 43.9%.

The higher figure is partly owing to Growthpoint’s early adoption of the second edition of the South Africa Reit Best Practice Reporting guidelines.

Debt owing in South Africa increased by R8.1-billion, including R1.8-billion relating to the translation of rand balances of euro, pound and dollar loans, given the weaker domestic currency.

The balance was the result of Growthpoint’s further investment of R600-million in Growthpoint Investec African Properties (GIAP), R1.3-billion in Globalworth, its new R2.9-billion investment in Capital & Regional, and development and maintenance capital expenditure of R2-billion in its South Africa portfolio, all of which were mainly funded by debt.

The LTV was also impacted by the 8.8% (R7.1-billion) devaluation of Growthpoint’s South African portfolio. Its retail portfolio's value decreased by 11.3%, offices by 8.9% and industrial by 5.8%.

Growthpoint’s South African business’ LTV increased to 39.8% from 31.8% in the 2019 financial year.

Growthpoint’s net property income (NPI) from its South Africa business dropped by 8.7% (R559-million) of which 93% was directly owing to the impact of Covid-19 in the final quarter of its financial year, including R277-million of discounts granted to those tenants most severely impacted by the lockdown between April and June.

Arrears increased in all sectors to an unprecedented high of R511-million. Expenses surged with a R236-million provision for bad debts, including a 25% provision on the R141-million of rental deferments Growthpoint offered to tenants and R7-million of extra Covid-19-specific costs.

In South Africa, Growthpoint let more than one-million square meters of space during the year.

All South African portfolio fundamentals weakened, with vacancies rising from 6.8% to 9.5%, renewal success rates decreasing to 66.4% from 70.1%, and average rental reversions moving deeper into negative territory from -5.3% to -6.7%.

Growthpoint completed developments and capital expenditure projects worth R2-billion.

It earned third-party development fees of R11-million and R30-million of development rental income in the year under review.

Growthpoint successfully disposed of R581.8-million of noncore assets and made R274.6-million of strategic acquisitions to optimise and streamline its South Africa portfolio.

The South Africa retail property portfolio vacancies edged up slightly but remained a low 3.7% excluding offices and space under development.

Growthpoint concluded a transaction with the various acquirers of the Edcon brands which will see 90% of the related 88 680 m² of space in Growthpoint’s portfolio remain let at new market rentals.

“South Africa has a difficult recovery ahead with a more than 10% contraction in gross domestic product expected this year amid a global recession. A sharp deterioration in already stressed property fundamentals will exert profound pressure on the sector.

"An increase in business failures will be a major factor. It is too early to understand the full extent of the structural changes taking place in the office and retail sectors. Still, we know that this environment definitely won’t be easy,” noted Sasse.

The V&A Waterfront, which was severely impacted on by the Covid-19 national lockdown, delivered R606-million, which amounts to 10.6% less in investment income to Growthpoint compared with the prior financial year.

While visitor numbers are increasing, they remain at about 40% of levels this time last year. Its new office development for Deloitte remains on track and is due to welcome the tenant in November.

“We are cautiously optimistic about the V&A Waterfront in 2021. It is a strong asset with solid property fundamentals, but much will rely on the return of international and local tourism,” explained Sasse.

Growthpoint now has around R10-billion of assets under management and is focused on building its first two funds. Income from the funds management business grew by 6.3% (R2-million) to R34-million.

“The co-investment and co-management model is proving effective and is particularly attractive in the current environment. Growthpoint will continue to pursue innovative partnerships and ways of investing,” said Sasse.

The healthcare fund, Growthpoint Healthcare Property Holdings, grew its distribution a share by 5.8% to 77.45 apiece.

Growthpoint invested a further R4.2-billion offshore during the year, and its international investments now account for 40.8% of property assets by book value and 28.2% of earnings before interest and taxes. It intends to refine its approach to international investments in the year ahead.

Growthpoint Properties Australia (GOZ), with its defensive portfolio of office and industrial assets with strong tenancies, outperformed its pre-Covid-19 guidance.

With 97% of its tenant base being big corporates and government, and having no retail assets, Covid-19 had little impact on GOZ’s performance and its earnings were not materially impacted.

During the year, its asset values increased, while its cost of debt reduced and gearing levels decreased to a low 32.2% with good liquidity.

Its portfolio occupancy was 97%, excluding its new Botanicca 3 development which was completed in late 2019 and is in the process of being let.

GOZ continued to make a positive contribution to Growthpoint with NPI increasing by 8.6% to R2.5-billion, while its operating expenses increased by 8.5% to R153-million.

GOZ adopted a conservative approach to its dividends to preserve cash in the business amid ongoing uncertainty. Growthpoint’s dividend income from GOZ in the period was R1.010-billion.

“GOZ is a core investment for Growthpoint. It enjoys strong property fundamentals, a great liquidity position and has the means to pursue growth,” said Sasse.

Growthpoint’s new investment in the UK, Capital & Regional, was included in its results for the first time. Capital & Regional found itself in a challenging space with its pure retail portfolio exposed to the existing negative impacts of Brexit and the country’s shift to online retail, which were exacerbated by Covid-19.

“It is too early to quantify the full impacts of Covid-19 and the accelerating structural shifts in the retail industry on Capital & Regional’s operations, but there is no doubt that it is going to be a long road to recovery,” noted Sasse.

Growthpoint’s Central and Eastern European investment platform Globalworth mainly comprises office and industrial assets, with limited exposure to retail property, which stood it in good stead to withstand the impacts of the strict Covid-19 measures imposed in Poland and Romania.

The Globalworth portfolio held and increased its value with six acquisitions and one major new development completed, while its gearing remained conservative. Its portfolio occupancy was a solid 94.2% including options at year-end.