JSE-listed real estate investment trust (Reit) Growthpoint Properties delivered a 0.2% year-on-year growth in distributions a share for the six months ended December 31.

The company declared an interim dividend of 106c apiece.

The low growth in distributions a share was in line with group CEO Norbert Sasse’s warning in the group’s results for the financial year ended June 30 that the company’s distributions a share growth would be nominal for the foreseeable future, owing to a persistently challenging macroeconomic environment in South Africa.

For the six months under review, the Reit grew its distributable income by 2.2%, or R67-million, to R3.2-billion, which was largely supported by the group’s international assets.

Growthpoint South Africa CEO Estienne De Klerk on Wednesday explained that growth was currently only derived from its internationalisation strategy and somewhat from its trading and development and funds management strategies.

“Two years ago, these strategies were sufficient to offset a flat South African portfolio and still deliver distributions growth of 4%; however, the South African situation has deteriorated to such an extent that the international operations are only able to recover the company’s growth rate to rates below inflation,” he noted.

Sasse asserted that only government, the private sector and foreign direct investment could stimulate growth in South Africa and that government was occupied with the country’s financial crisis, while corporate South Africa was suffering deteriorating financial health as a result of macroeconomic and trade conditions.

He added that foreign direct investment was stagnant as a result of a lack of confidence owing to policy uncertainty, but also as a result of slowing global economic growth amid the Covid-19 virus outbreak, trade tensions and the like.

“Even if South Africa’s growth rate were to recover from better conditions locally, the world economy would have to grow at a higher rate for South Africa to recover. The country is very unlikely capable of growing in isolation.”

Nonetheless, Growthpoint continued to invest in South Africa and remained confident in the country’s ultimate economic recovery, with R1.4-billion in capital expenditure invested in the six months under review, which mostly comprised new developments, such as the 144 Oxford property, in Rosebank.

De Klerk and Sasse mentioned that they did not foresee the Reit spending such an amount on new developments any time soon, lamenting that a building would need to be 80% pre-let before they would consider construction of such a big development at this time.

The Reit was also in no immediate rush to invest significantly more money in any of its international markets.

Growthpoint currently owns 441 properties directly in South Africa, valued at almost R80-billion, including R2.7-billion in a Healthcare Properties Holdings Fund, which comprises four hospitals and one medical chamber building.

The Reit undertook development of the new head and neck hospital, in Pretoria, due for completion in August this year.

The company has four equity-accounted investments, valued at R17.2-billion, including a 50% share in the V&A Waterfront, in Cape Town. 

The company has a 62.2% interest in ASX-listed Growthpoint Properties Australia (GOZ), which owns 58 properties in Australia, valued at R42.5-billion.

Growthpoint acquired a 51.1% interest in LSE-listed Capital and Regional in the six months under review, which owns seven retail properties in the UK, valued at R14.8-billion.

The South African portfolio accounts for 64.8% of the total portfolio value, while the international assets account for 35.2% of the portfolio value.

Growthpoint said the C&R acquisition had already paid off, with the company contributing almost R70-million to group revenue and nearly R16-million to profit in just two weeks to December 31, 2019.

“The acquisition of C&R has provided exposure to a needs-based defensive retail portfolio. C&R is unlikely to have a meaningful impact in the short to medium term given the funding structure of the acquisition.

“Unfortunately, any growth from the Reit’s strategic initiatives to internationalise, and create new revenue streams through its funds management business and trading and development, will be eradicated by our significant exposure to the overall South African economy where gross domestic product growth is in decline, which continues to weaken property fundamentals.

“As such, the Growthpoint board expects, if any, only nominal growth in dividends a share for the financial year ending June 30.”

Further, the Reit acquired two office properties for R134-million in South Africa, in the six months under review.

Growthpoint explained that it has developments outstanding valued at R1.2-billion in South Africa, including R248-million for trading and development.

In the six months under review, GOZ acquired one industrial property for R429-million, and incurred a development cost of R666-million. GOZ has commitments outstanding totalling R687-million, which mainly relate to a tenant incentive for a 25-year lease at 1 Charles Street, Parramatta and other building developments.

Growthpoint disposed of nine properties in the six months under review, valued at R433-million.

The Reit posted a group vacancy rate of 6.3% in the six months under review, compared with a vacancy rate of 5.8% in the six months ended December 31, 2018. The company said vacancies had increased across all the South African property sectors, and therefore tenant retention remained a priority for the company.

“Our internationalisation strategy has resulted in our offshore footprint increasing; however, the majority of the Reit’s assets remain in South Africa, both by earnings before interest and tax value at 75.7% and by market value of property assets at 64.8%, where the macroeconomic environment continues to weigh heavily on all property key performance indicators.

“The V&A Waterfront, which benefits from local and international tourism, is positioned to deliver growth but is not immune to the erosion in the domestic economy. There is, however, still demand from corporates for offices at the V&A and this is positive for our investment returns,” Growthpoint said.

The Reit added that the V&A Waterfront continues to look for opportunities to enhance earnings, increase bulk, densify the precinct and grow its footprint.

“Our international investments should contribute positively to the full year’s distribution growth. Property fundamentals in Australia remain strong with capitalisation rates and interest rates at all-time lows.

“GOZ’s balance sheet is in excellent shape with substantial debt headroom for accretive acquisitions and a development pipeline which is also expected to deliver above market returns. GOZ is well positioned with exposure to the two favoured commercial property sectors, being office and industrial.

GOZ reaffirmed its expectation to grow its distribution a share by 3.5% to A$0.23 for the full year.

Against a backdrop of strong macroeconomic fundamentals in both Poland and Romania, coupled with a robust property market, GWI, the company’s Eastern European investment, is also expected to perform well and contribute positively to Growthpoint’s distribution a share growth for the full financial year.