Growthpoint Properties reports solid 13.5% growth in interim distribution

Posted On Wednesday, 27 February 2008 02:00 Published by eProp Commercial Property News
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Exceeding budgeted expectations, South Africa’s largest JSE-listed property company declared a distribution of 51,1 cents per linked unit for the six month period to 31 December 2007, compared to the 45 cents per linked unit in the comparable period

Norbert SasseWith assets and market capitalisation of R24 billion and R20 billion respectively, Growthpoint is a hands-on property owner which undertakes the asset management and property management of its premium portfolio of 430 buildings located throughout South Africa, spanning over 4,200,000m2 and accommodating in excess of 5,000 clients.

CEO of Growthpoint Properties Limited, Norbert Sasse, attributes the strong performance of the company to the high occupancy levels and growing rentals of its property portfolio, the positive impact of Growthpoint’s income enhancing management “buy-in” transaction and its R1,65 billion capital raising by way a claw back rights offer with the Public Investment Corporation (PIC).

Sasse also emphasizes that Growthpoint’s increase in distributions is based on sustainable earnings derived from property net rental income and investment income. “We anticipate that, subject to market conditions remaining stable, Growthpoint will maintain this elevated level of performance for the full financial year,” says Sasse.

“Growthpoint’s performance is driven by the solid fundamentals in the underlying property portfolio. Declining vacancy levels, with the entire portfolio expressing an unprecedented occupancy level of 98.2% at the end of the interim period, indicates a strong demand for premises coupled with restricted availability of space across all sectors,” notes Sasse.

Increases in net property income during the period were most evident in Growthpoint’s industrial portfolio, comprising 22% of the company’s assets by value, which grew at 16.0% on a “like-for-like” basis, a figure well above average rental escalation rates of around 9.0%. This was followed by office space which reported an increase in net property income on a similar basis of 15.2% and retail space at 10.2%. By value, retail space comprised 38% and offices 40% of Growthpoint’s investment property portfolio.

During its interim period, Growthpoint acquired its property services businesses, including its property fund management and property administration businesses for a total purchase consideration of R1,6 billion from Investec Property Group and the BEE partners AMU Trust and Phatsima.

“This management “buy-in” was undertaken to allow Growthpoint to be more competitive in pricing new acquisitions as well as accomplish increased cost savings and economies of scale from employing own staff versus paying a management fee. This has certainly been achieved,” says Sasse. The management fee, previously calculated at 0.5% of the aggregate of the market capitalisation plus debt of the company, would have amounted to R63 million for the six month period. As a result of the management “buy-in”, however, this was not payable. Furthermore, savings are starting to come through in the property expense line with the cost to income ratio for the period under review improving to 24.9% from 26.8% for the same period last year and 25.0% for the last financial year ended 30 June 2007.

The company issued 98.3 million new linked units to fund the acquisition of its property services businesses in November 2007 and a further 8,5 million new linked units were issued in respect of the executive and staff incentive scheme to retain key executives, management and staff and to align their interest with those of Growthpoint’s linked unitholders. 

Growthpoint’s linked units continue to enjoy high levels of liquidity and tradeability. R7,8 billion of Growthpoint linked units traded on the JSE Securities Exchange during the six month period, representing an exceptional 41.4% of units in issue.

In another positive transaction, Growthpoint raised R1,65 billion through the placing of 100 million new linked units with the PIC on behalf of the Government Employees Pension Fund in a renounceable claw-back rights offer on 1 October 2007. The PIC retained 97 million of those linked units pursuant to the take-up of three million linked units by Growthpoint’s other linked unitholders in terms of the offer. Accordingly the PIC’s linked unitholding increased to 29.1% of Growthpoint’s total linked units in issue as at 31 December 2007.

“The capital raised was utilised for debt repayment as well as major acquisitions and developments, achieving a substantial saving on cost of debt,” explains Sasse.

Growthpoint’s debt to asset value ratio represented at a conservative 32,9%, having substantially reduced from 42,5% at the close of the comparable interim period in 2006.

With an appetite for growth and the resources for acquisition, Growthpoint purchased some R825,7 million worth of properties, approved developments valued at R3,0 billion and entered into agreements for property transactions totalling a further R1,0 billion during its interim period. The company’s only disposal was the residential component of Lighthouse Mall, which comprises retail, office and residential space, for R16 million.

Included in the approved developments above, are exceptionally high-profile property assets including The Place at 1 Sandton Drive, Woodmead Retail Park, Growthpoint Industrial Estate and the fifth phase of Constantia Office Park, all in Gauteng, as well as The Estuaries in Century City, The District in Woodstock and MontClare Place in Claremont, in Cape Town. These quality assets located in prime positions accommodating top-notch tenants and blue-chip leases will all begin contributing to Growthpoint’s rental income before the end of 2008.

Growth is a key focus of the listed property sector in general, explains Sasse, with significant size enhancing competitiveness, increasing investor appeal and providing portfolio diversification, thus mitigating risk. In the current market, growth through acquisition is severely restricted due to the limited number of existing investment-grade properties available for purchase which offer feasible yields.

In terms of immediate challenges, Sasse states that a slow-down in consumer spending has been noted as higher interest rates and higher inflation levels are impacting on disposable incomes.

“The recent power outages have exacerbated the situation for smaller tenants in particular,” says Sasse. He points out that although bad debts and tenancy failures are expected to increase, this is not likely to be material to Growthpoint’s results for the year ended June 2008, due to the large tenant base diversification throughout its industrial, retail and office sectors.

The energy crisis could serve to curb future new developments as a result of the limited infrastructure available, points out Sasse. However, work has already commenced on the majority of Growthpoint’s development projects which ensures infrastructure is already in place to serve the development projects in Growthpoint’s development pipeline

Sasse explains that constraints on infrastructure and development are good news for property owners in all sectors, with scarcity driving up rental levels. In addition, the tightening of credit is resulting in fewer buyers in the market, and the slowdown in demand creates the upwards movement of capitalisation rates, which has a positive impact on yields. “We are expecting to see an increasing number of good acquisition opportunities on the market,” he says.

Furthermore with 94% of Growthpoint’s interest bearing debt fixed for a weighed average of 9,5 years at an all in rate of 9.2%, the higher cost of borrowing arising from increased interest rates will only impact on the company’s 6% floating debt and any new debt.

Last modified on Tuesday, 22 April 2014 10:57

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