Growthpoint Properties ups half-year dividend 4.6%

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FIFI PETERS: The Growthpoint numbers (six months to 31 December 2022) reflect some good news, like most property companies have been reporting, particularly those exposed to the tourism, hospitality and entertainment sectors. Growthpoint has enjoyed a bumper festive season, saying that income from the Victoria & Albert Waterfront [the V&A] in Cape Town jumped 23% in its half year, and have actually recovered fully from the effects of the pandemic.

But pressure still remains in the Growthpoint business, and that is due to some underwhelming performances by the economy, which resulted in Growthpoint renewing fewer leases this time around, and also extending existing leases at a less desirable price than a year ago. We have the CEO of Growthpoint Group, Norbert Sasse, here for more on the numbers.

Long time no speak, Norbert, but you do have a good story to tell, particularly when it comes to the V&A. So tell us more about that and who was behind such strong traffic and income at the V&A this festive season.

NORBERT SASSE: Hi and good evening, Fifi. Thanks for having me. Yes, it’s a good story. I guess it’s modest growth, but in this environment I’d say any growth is good growth. So we’ll take what we can get at this time. And thanks to our diversified portfolio of assets, not only in South Africa but also our international exposure and our fund management business, we were able to eke out some growth.

As you highlighted there in your introduction, the stellar performer was the V&A Waterfront. I guess the number might be a little bit flattering because it’s compared to the six months to December ’21, which was heavily impacted by Covid. But be that as it may,

I’d say literally across every segment of the V&A Waterfront, from the restaurants to the hotels, to the retail and the markets, and the shipping and mooring, the offices even, there’s no vacancy in the office portfolio at the Waterfront; all sectors are performing strongly.

Add to that the international tourism and the fact that cruise liners are docking again, we have something like 124 flights into Cape Town now on a weekly basis, and multiple events in the city, in the Waterfront and at the Cape Town Convention Centre. All of those factors filter through into a very, very good performance at the Waterfront.

So there’s not one particular segment [performing well], but it was literally across the board, which is obviously very encouraging.

Our international businesses also contributed pretty handsomely. Most of them were positive in their contribution. The one that stands out a bit more than the others, I guess, is the UK investment into Capital & Regional, where in the prior comparable period we didn’t receive a dividend. But for this period we did, and that’s about a R50 million difference on the upside.

The biggest negative on our numbers is our interest cost where, given what’s happened to interest rates in the last six to eight months, and again relative to the comparable period to December ’21, we’ve seen almost an R80 million negative variance. Thank goodness for our policy of hedging our interest-rate exposure, we are about 85% hedged. So this R80 million negative for the six months is in relation to only 15% of our debt. If we weren’t hedged at all those numbers would’ve been pretty disastrous.

FIFI PETERS: It’d be SVB [Silicon Valley Bank] if you weren’t.

NORBERT SASSE: Absolutely. So the challenge still remains, I think, firmly in the South African portfolio in the office sector. Vacancies still remain stubbornly high. We have seen them come down just marginally. The overall South African vacancy rate dropped from just over 10% to just below 10%, but still there are negative reversions on renewals when a tenant of ours’ lease comes up for renewal. As to the size of the operational side of the business, to give you an indication, we renewed and let over 700 000 square metres of space in the six-month period; but we are still seeing negative reversions there when leases are renewed – I guess indicating the supply/demand mismatch in office in particular.

We are feeling a lot better about retail and industrial. But, all things considered, if you just listen to the economic news from manufacturing and mining, and into business confidence – and it doesn’t matter where you look – things are pretty tough at the moment.

FIFI PETERS: Sure. I see you also have some tenants who opted not to renew, who left. But who are they, and why did they choose not to stay?

NORBERT SASSE: I wouldn’t want to point out anyone in particular, but the fact of the matter is very few businesses are really growing and employing new staff at the moment. There’s also the work-from-home dynamic which is still at play, and I think that whole situation hasn’t played through and played out in full yet. So many corporates and smaller businesses are taking a view that they could potentially do with less space, or they might even consider operating from home – certainly the large corporates which historically have been the bedrock, I guess, of our business, the large corporates. And corporate South Africa has not really been employing. We see that in our unemployment numbers at a macro level, and that I guess perpetuates the imbalance between supply and demand.

FIFI PETERS: Norbert, in terms of outlook, the best-case scenario is that the economy grows by 1% this year. In the worst-case scenario, South Africa’s economy grows by 0.3%, according to what the South African Reserve Bank has pencilled in. What then does that mean for your business and the kind of numbers that you’ll be reporting at the year-end?

NORBERT SASSE: Fifi, we did guide for what we call ‘muted growth’. So we continue to believe that we can pick up some growth, albeit it’s going to be pretty low levels of growth, and that is attributable to, I guess, the diversified nature of our business.

The offshore businesses are relatively stronger than the South African business. The rand continues to weaken, and we are converting hard currency dividend earnings into more rands. So that creates a buffer. We are hedged on the interest-rate side, so if interest rates rise even further, which we predict they will, it’s only on a small portion of our total debt.

Then we do feel that [with] the contributions we are getting from, let’s say, the newest part of our business, which is Growthpoint Investment Partners, or our fund management business, we will continue to grow those businesses and grow the fees that they generate, as well as the underlying dividends from our co-investment.

So with a pretty diversified business, a pretty conservative balance sheet, pretty strong sort of debt metrics, we believe that we are positioned to withstand this weak period of growth that South Africa is forecast to experience, and that we would hopefully just eke out some meagre growth.

FIFI PETERS: Okay. I think your shareholders are hoping for the same. But we’ll leave it there. Good to catch up.

Norbert Sasse is the group CEO at Growthpoint.

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