The largest South African listed property company with 436 geographically and sectorally diverse properties valued at over R27 billion, Growthpoint reported a market capitalisation of R14 billion at 30 June 2008. Since then, and in line with the listed property sector, Growthpoint’s unit price has rebounded by over 20% taking its market capitalisation to back over R17 billion.

Growthpoint Properties Limited CEO Norbert Sasse attributes this positive performance, to solid market fundamentals as well as Growthpoint’s lucrative claw-back rights offer and cost-saving management buy-in transactions concluded during the year. Sasse points out that the growth in distributions was based on core, sustainable earnings derived from property net rental income alone.

“The timing of our capital raising was fortunate, as market conditions were favourable and the cash was raised at a forward yield of below 7%,” notes Sasse. On 1 October 2007, Growthpoint raised R1,65 billion through the issue of 100 million new linked units in terms of a claw-back rights offer to the Public Investment Corporation on behalf of the Government Employees Pension Fund.

Structured to be enhancing, the management ‘buy-in’ was also a beneficial transaction for Growthpoint, with cash savings equal to approximately R141 million achieved for the year in terms of asset management fees and net property management expenses. The management buy-in involved the acquisition of the property fund management and property management and all related activities (Property Services Businesses) from Investec Property and Growthpoint’s black economic empowerment partners for a consideration of R1,6 billion.

Growthpoint is now uniquely positioned as the only listed property company with entirely internal management which performs every aspect of property fund management, property administration, letting, facilities management, developments and redevelopments internally. Furthermore, every Growthpoint employee is also now a shareholder, facilitated by the issue of 8,5 million new linked units in terms of the staff incentive scheme put in place as part of the management “buy-in” transaction.

Sasse points out that the impact of interest rates being raised by 4,5% over the last two years and higher fuel and food prices has caused a slow-down in the economy “The recent power outages have exacerbated the situation for smaller tenants in particular,” explains Sasse. To date, Growthpoint has not seen a significant increase in arrears and bad debts or vacancy levels, although bad debts and tenancy failures are expected to increase. This is not likely to be material to Growthpoint’s results due to the large diversification among industrial tenants and the high exposure to national tenants and dominance of its regional shopping centres. 

“Distributions are expected to grow at a level below that of 2008. However, provided that there is no significant deterioration in economic conditions, we are anticipating achieving growth in distributions of approximately 10% for the next financial year,” says Sasse.

On a like-for-like basis, Growthpoint’s property net income is expected to grow at similar levels than the 11,0% experienced in the year ended 30 June 2008. Sasse explains that the impact of Growthpoint’s newly completed developments and those which are to be completed in the next six months is likely to increase vacancies in the office sector in the short term, as these properties may not all be fully let on completion. However, all are expected to make a positive contribution to rental streams within months of completion and will enhance Growthpoint’s portfolio.

In addition, unlocking value and ensuring the sustainability of its portfolio, Growthpoint is budgeting to spend R360 million on capital improvements to properties that will in the medium and longer term achieve higher rentals.

The R3,4 billion Growthpoint invested in acquisitions and developments during the year was partly financed by the R1,65 billion additional equity capital raised, with the balance being financed from additional borrowings.

At the close of the financial year, Growthpoint’s loan-to-value ratio was 34,5% with 98,2% of interest-bearing debt fixed at a weighted average rate of 9,1% for a weighted average of 9,6 years. Growthpoint has very little exposure to interest rate risk for the next two years. In addition it has access to new debt lines and refinancing for its existing debt is also accessible, to facilitate ample growth.

Proactively managing borrowings, Growthpoint has entered into two 10 year forward-starting swaps of R250 million each, with starting dates of 30 September 2008 and 31 December 2008.

Growthpoint’s linked units continue to enjoy high levels of liquidity and tradability. During the year ended 30 June 2008, R10,6 billion (2007: R5,9 billion) of Growthpoint linked units traded on the JSE Limited, representing 55,8% (2007:47,6%)of units in issue.

Tangible net asset value increased by 12,3% to 1 432 cents per Growthpoint linked unit.

Reflecting an increase in value of R1,8 billion, Growthpoint’s portfolio was re-valued at R27,2 billion at the close of the financial year. Growthpoint acquired R2,3 billion of new properties in the year, and invested R1,1 billion on developments. Three non-core properties were sold for R111 million, at a profit of R11 million on cost, and residential apartments at Lighthouse Mall in Durban were also sold for R9 million.

At 30 June 2008 Growthpoint’s vacancy levels, as a percentage of gross lettable area (GLA) was 2.9% and vacancy levels in all sectors have remained low.

Highlights coming from Growthpoint’s property portfolio include the April 2008 opening of 52,300m² regional shopping centre Woodmead Retail Park, which was completed at a cost of R505 million and acquired on an initial yield of 8,0%. This regional shopping centre, superbly located in Sandton, is subject to a one-year rental guarantee from the developer.

The Place at 1 Sandton Drive was completed in March 2008 at a cost of R490 million. This 32,600m2 premium grade low-rise multi-tenant office is now fully let and on this basis is expected to show a 10,1% initial yield. The District, a R270 million, 17,346m2 low-rise office block in Woodstock, Cape Town, was completed at the end of May 2008 with a one-year rental guarantee in place from the seller based on an initial yield of 8,05%. Growthpoint’s R475 million extension to Investec’s head office building in Sandton is expected to be completed in November 2008 and will yield 8,05%.

The R500 million MontClare Place in Claremont, Cape Town, should be completed in phases between August and October 2008. The landmark property consists of 29,347m2 of retail and office space, of which 24,729m2 has been let. There are also 61 sectional title residential units of which 47 units have been pre-sold. The R213 million redevelopment of 11 Adderley Street, which includes 22,136m2 of office space in Cape Town, is set for completion November 2008 and expected to yield 9,5% when fully let. Some 3,000m2 has already been let. The redevelopment also includes a major refurbishment of the existing retail component, Grand Parade Centre.

“Building construction costs, especially steel, have grown at a rate well in excess of CPI inflation. This has made the viability of new developments dependent on achieving rentals of at least double the average rentals currently being paid,” says Sasse.

Furthering Growthpoint’s Black Economic Empowerment (BEE) programme, which has already achieved 23,8% ownership by historically disadvantaged South Africans measured using the exclusionary method in terms of the Department of Trade and Industry Codes, the company pursues a proactive BEE procurement programme. “As at the end of the financial year preferential procurement was at 38,6%,” says Sasse. In this regard, Growthpoint is assisting to establish small, medium and micro (SMMEs) which serve South Africa’s property sector through our enterprise development initiative, Property Point, which was officially launched during the year.

Supporting the drive for green building in South Africa, Growthpoint confirmed its status as a Platinum Founding Member of the Green Building Council of South Africa, which strives to promote, encourage and facilitate green building in the South African property industry through market-based solutions. Growthpoint has also appointed an energy and environmental advisor to counsel on all its new developments and current properties to ensure optimal energy efficiencies, adherence to legislative compliances and to maximise its positive contribution to the environment.