JSE ALSI 40 company Growthpoint Properties Limited recently announced an interim distribution of 59,1 cents per linked unit for its six month interim period ended 31 December 2009. The largest South African listed property company with a market capitalisation of over R21 billion at 31 December 2009, Growthpoint has a quality portfolio of 435 properties in South Africa valued at R29,7 billion and 24 properties in Australia through its investment in Growthpoint Properties Australia (GOZ) valued at R4,9 billion.

The company’s distributable income grew 27% from R721 million for the prior corresponding period to R915 million, whilst distributions per linked unit grew at 5% reflecting the higher number of units in issue for the period.  The growth in distributable income was mainly attributable to its Australian acquisition but was also positively impacted by other acquisitions and new developments in South Africa.  Growthpoint’s distributions are based on sustainable income generated from rentals.

Growthpoint Properties Limited CEO Norbert Sasse reports that the period marked a successful strong financial focus and a milestone international expansion for the company.

Allowing Growthpoint direct access to debt capital markets and enabling it to launch a R5 billion Domestic Medium Term Note programme (DMTN), Moody’s Investor Services assigned Growthpoint global long-term and short-term Issuer Ratings of Baa2 and P2 respectively and long-term and short-term South African National Scale Ratings (NSR) of A1.za and P1.za respectively. These favourable ratings were assigned in November 2009.
 
Resulting from this, Growthpoint became the first South African listed property company to successfully enter the Commercial Paper (CP) market with its R500 million inaugural senior unsecured Commercial Paper (CP) issue which was well oversubscribed, with R1.5 billion of bids submitted. The significant demand resulted in favourable pricing with a weighted average margin across the three month and six month notes of 62 basis points above Jibar compared to more than 200 bps for conventional mortgage debt. 

In addition Growthpoint raised R1,3 billion of new capital through a vendor placement in September 2009 to fund its landmark Australian acquisition and introduced an innovative industry-first linked unitholder reinvestment option which received a substantial 65% support and, as a result, raised a further R540 million in new capital.

“Growthpoint is well capitalised and its excellent access to funding, across all channels, positions it strongly for future growth as more positive fundamentals come into play, which we anticipate will be evident by early 2011,” notes Sasse.
 
Its inaugural international investment also contributed to Growthpoint’s positive performance with its superbly timed acquisition of a 76,2% share in an Australian property trust, now Growthpoint Properties Australia, which was included in the company’s results for the first time this financial period. Growthpoint Properties Australia owns 24 quality warehouse and logistics type industrial properties in the major metropolitan throughout Australia.

“The investment was made when the Australian market was at its lowest point, providing an extraordinary prospect during a small window of opportunity,” says Sasse. “Our Australian investment has performed somewhat better than anticipated and exchange rates hedged at more favourable levels than those budgeted have also contributed to higher than anticipated returns”.

“Growthpoint Australia provides us with a solid footing in that country. Our challenge now is to expand the fund in a market which has rapidly recovered and presents fewer opportunities to grow in a more competitive environment,” explains Sasse.

Maintaining and enhancing its properties during the period, Growthpoint invested some R392 million on developments, expansions and upgrades within its portfolio, whilst four properties were disposed of for R379 million realising a profit over historical cost of R180 million.

In addition to contractual rental escalations, the 24.5% increase in gross revenue and 16.7% increase in property expenses was mainly due to the acquisition of Growthpoint Australia together with other acquisitions and new developments that contributed, net of disposals, an additional R222 million to net property income for the six months ended 31 December 2009. On a like-for-like basis, Growthpoint’s net property income increased by 8.9%.

The annual revaluation of properties resulted in an upward valuation of R687 million for the portfolio, bringing the value of the total Growthpoint portfolio to R34,6 billion.

Overall occupancy levels in Growthpoint South Africa’s portfolio remained largely stable with a marginal 0.6% increase in vacancies over the six-month period. Approximately 1.1% of the 6% total vacancy is in four new office developments and two new industrial developments which came on stream over the past year. Sasse notes that since the last quarter of 2008, there has been a marked slow-down in economic activity and it is taking longer than anticipated to let vacant space.

“This is high quality space in good locations and should provide some upside when the economy recovers and letting improves,” explains Sasse, who elaborates that Growthpoint remains cautious around property fundamentals. “Vacancies are likely to increase, possibly peaking mid-year. However we expect to see a pickup in leasing later in the year, which will be further reinforced by improved conditions in 2011”.

Sasse explains that few new developments are likely to come to market as a result of rentals being under pressure given higher vacancy levels across all three commercial property sectors, soft demand as well as building costs remaining high, even though they have come off from previous record levels.

Growthpoint’s South African portfolio covers 4,520,170sqm and its Australian portfolio covers 731 798 sqm. The South African portfolio represents 86% of the total portfolio, by value and GLA, and is well diversified in the three major sectors of commercial property: office, retail and industrial. The bulk of the value of the South African properties is situated in the major metropolitan areas in strong economic nodes.

In December 2009, Growthpoint made its debut on the JSE's socially responsible investment (SRI) index, based on its positive environmental, social and economic sustainability practices and corporate governance. Growthpoint is the first South African listed property company that has been included in the index.

"As a listed property company, Growthpoint is aware of its responsibility to manage any direct impacts it may have on communities and the environment. We are proud that our governance, strategies and sustainability have been acknowledged for inclusion in the SRI index," says Sasse.

Furthermore the company’s inclusion in the MSCI emerging markets index, from November 2008 has resulted in increased international exposure for Growthpoint and the foreign shareholding has increased to 7.2% at 31 December 2009, from levels of around 3.3% prior to its inclusion. Growthpoint’s inclusion in the All Share 40 Top Companies Index (ALSI 40 Index) has also raised its awareness for international investors.

As a result of its vendor placement and link unitholder reinvestment option, Growthpoint’s linked units in issue increased by some 10% during the period whilst having the impact of reducing its loan to value ratio to slightly above 30%. On average more than 64 million Growthpoint linked units traded per month during the six-month period, with the monthly average value traded in excess of R870 million.