: Growthpoint Properties Exceeds Forecasts
Recent Gauteng Business News
Growthpoint Properties Limited, the largest South African listed property company with tangible assets of R36 billion, has exceeded its distribution forecast for the year ended 30 June 2010 achieving distribution growth of 5.8%.
Growthpoint’s distribution of 62,1 cents per linked unit for the six months ended 30 June 2010 represents an increase of 6.5% over the distribution for the corresponding six month period in the previous year and resulted in a total distribution for the year ended 30 June 2010 of 121,2 cents per linked unit.
The company provided returns of 28.4% to its investors for the year, comprising 19.4% capital growth and 9% income yield.
Norbert Sasse, CEO of Growthpoint Properties Limited, attributes the company’s positive performance to prudent financial strategies and proactive management. He points to the company’s inaugural international investment in a 76,2% share of the Australian property trust, now named Growthpoint Properties Australia (GOZ), as having increased distributions for the year by approximately 1,4 cents per linked unit. GOZ has been included in the company’s results for the first time this year.
“Growthpoint’s positive performance is significant given the effects of the global financial crisis and recent recession in South Africa,” says Sasse. “We are confident that we have come through the worst. Already an improvement in the overall position is evident.”
“Indications are that the economy is experiencing a moderate recovery. Should this be maintained and interest rates remain at current levels, it is expected that Growthpoint’s distributions for the coming year will grow at a higher rate than the 5.8% of 2010,” explains Sasse. Over the last five years, Growthpoint has delivered investors 11.4% compound annual growth in linked unit price and 10.9% average annual growth in distributions.
Amongst its highlights for the year, in November 2009 Moody Investment 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 investment grade ratings allow Growthpoint direct access to the debt capital markets and enabled Growthpoint to launch a R5 billion Domestic Medium Term Note Programme (DMTN). In November 2009, Growthpoint became the first South African listed property company to access the relatively cheaper funding available in the short-term commercial paper market.
Growthpoint’s good credit profile has seen strong demand from capital market investors, with large oversubscription for the initial issue in November 2009, as well as each of the three quarterly roll-overs (up to 12 August 2010). The margin that Growthpoint pays on three-month paper has also reduced from 55 basis points in November 2009, to 39 basis points in August 2010.
Growthpoint’s loan to value ratio (LTV), excluding GOZ, improved from 32.2% at 30 June 2009 to 29.9% at 30 June 2010. Including the more highly geared GOZ, the LTV increases to 33.2%.
Protecting Growthpoint from risk associated with interest rate movements, 99.3% of its interest-bearing debt was fixed at a weighted average rate of 9.9%, including margin, for a weighted average of 8,0 years at 30 June 2010.
“While still at higher levels than they have been historically, debt margins are beginning to ease which is positive for the listed property sector,” points out Sasse
Growthpoint is included in the JSE ALSI Top 40 Companies Index (ALSI 40). The company’s market capitalisation totalled R24 billion at 30 June 2010. Despite the challenging market conditions Growthpoint continues to meet its objective of providing investors with a highly liquid, tradeable instrument delivering consistently growing income returns and real capital appreciation over the long term. Over the past year, more than 67 million Growthpoint linked units traded on average per month, up from 63 million in FY2009. The monthly average value traded was more than R950 million, showing an increase from R875 million during the prior year.
During the year Growthpoint debuted on the JSE's Socially Responsible Investment (SRI) Index, based on its positive environmental, social and economic sustainability practices and rigorous corporate governance. “Growthpoint is pleased to be the first South African listed property company that has been included in the index. We are committed to sustainable business practices and will continue to meet these challenges on all levels,” says Sasse.
The company’s landmark investment in GOZ cost R1,3 billion and was paid for from the proceeds of a vendor placement of new Growthpoint linked units issued in September 2009 at R13,09 per linked unit. Strong demand from investors resulted in the issue being well over-subscribed.
An innovative industry-first linked unitholder distribution reinvestment alternative was introduced during the year, which received a substantial 65% support, raising a further R540 million in new capital. “Based on the success of our introductory distribution reinvestment option, it is again being offered to unitholders who are entitled to elect to re-invest their distributions in return for linked units,” says Sasse.
Growthpoint owns a quality portfolio of 431 geographically and sectorally diverse properties in South Africa spanning 4,469,174sqm and 25 properties in Australia accounting for 731 834sqm. The South African properties represent 86% of the total portfolio, by value and gross lettable area (GLA).
The revaluation of Growthpoint’s properties resulted in an upward valuation on South African properties of R700 million, equating to 2.3%, to R30,0 billion for investment property, including investment properties reclassified as held for sale. R110 million of the R700 million SA property revaluation relates to the properties held for sale, included in current assets at 30 June 2010 at a value of R629 million. On the Australian portfolio, an upward revaluation of R165 million or 3.5% was made, bringing the value to R4,9 billion.
Growing its portfolio in South Africa, Growthpoint acquired the remaining 13% of Lakeside Mall for R102 million and now owns 100% of the property. A newly developed industrial property in Stormill, Joburg, was also acquired for R50 million in December 2009. GOZ acquired a distribution centre in Goulburn, at a forward yield of 9.9% in December 2009.The acquisition was funded from existing syndicated debt facilities provided by financial institutions for AU$65,5 million (R467 million).
Maintaining and enhancing its property portfolio during the period, Growthpoint invested some R589 million on developments, expansions and upgrades within its portfolio, whilst seven properties were disposed of for R657 million, at a R55 million profit on the June 2009 book value and R301 million profit on cost.
During the year Growthpoint’s net property income increased by 7.4% on a like-for-like basis. Apart from contractual rental escalations, the increase in gross revenue of 23.2% and property expenses of 20.6% was mainly due to the acquisition of GOZ.
“The growth of property expenses has been somewhat escalated by rapidly increasing recoverable occupation costs, such as electricity and assessment rates, while revenue has been somewhat constrained by a marginal increase in vacancies and rentals coming under pressure,” Sasse explains.
The total vacancy level in Growthpoint’s South African portfolio was 6.4% at the close of the year, up only 1% from the prior year. The industrial sector was most affected by the poor economic conditions experienced over the last year, with vacancies growing from 4.4% to 6.7%. Office vacancies remained largely unchanged at 9% and retail vacancies reduced marginally from 3.2% to 2.7%. There were no vacancies in the Australian portfolio.
At the end of June 2010, arrears for the South African portfolio remained stable at R36,3 million. The total bad debt charge to the income statement decreased to R12,5 million from R17,0 million in the prior year, and a provision of R14,9 million has been raised at 30 June 2010 for potential bad debts.
“Economic conditions appear to have stabilised and are gradually improving. A slow but steady improvement in occupancy levels in the office and industrial sectors is expected in the next year,” notes Sasse.
Subsequent to 30 June 2010, GOZ announced the acquisition of seven direct property assets for a total price of AUD171,5 million at a weighted average yield of 8.4%. The acquisition will diversify the 100% industrial portfolio of GOZ, to include the office sector. The properties are located in the attractive Brisbane property market in Queensland with quality tenants and good lease covenants.
The acquisition will be funded by a 1-for-3 pro-rata renounceable rights offer at AUD1,90 per stapled security, providing approximately AUD101 million, and the balance from existing syndicated debt facilities. Growthpoint and Emira Property Fund (Emira), which together hold 82.6% of GOZ stapled securities in issue, have committed to subscribe for their rights. Emira has committed to subscribe for additional stapled securities under the shortfall facility, if any, such that the total amount raised under the rights offer will be approximately AUD101 million.
“We may procure subscription for some of our rights, reducing our percentage stake in GOZ following the rights offer, in line with our intention to dilute our holding in GOZ over time as GOZ expands,” notes Sasse.
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