INVESTOR UPDATE FOR THE NINE MONTHS ENDED 31 MARCH 2019 - Growthpoint
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INVESTOR UPDATE
FOR THE NINE MONTHS ENDED
31 MARCH 2019
From a strategic perspective, we continue to focus on the three Trading and development
pillars previously identified:
We continue to leverage our skills to take advantage of the
1. Internationalisation opportunity to earn development fees from third parties as an
2. Introducing new revenue streams agile partner for our clients. For HY19, we reported that
• Funds Management R49.4m of fees had been earned from trading and
• Trading and development development. Contingent upon the timeous transfer of the
3. Optimising and streamlining our existing portfolio Bakers Transport property in Samrand, we do expect trading
profits and development fees for the last six months of FY19 to
1. Internationalisation be similar to that of the first six months.
The growth of our offshore business remains a key driver for We remind investors that, at any time, the value of projects
Growthpoint. At the same time, we will ensure that our LTV pre-identified as opportunities for trading and
ratio remains at an acceptable level. Our internal threshold is development for third-parties will not exceed 5.0% of the value
45%, however, Moody’s require a maximum LTV ratio of 40% of the RSA portfolio. The development of assets for our own
to maintain our AAA domestic rating. We remain committed to balance sheet will not exceed 10.0%. At the same time, any
supporting both Globalworth Real Estate Investments (GWI) once-off income of a non-rental nature, including trading and
and Growthpoint Properties Australia (GOZ) in their growth development fees and profits, will contribute a maximum of 1%
trajectories while also looking for other opportunities. to 2% of distributable income and, as has been done in the past,
will be clearly and transparently disclosed.
2. Introducing new revenue streams
3. Optimising and streamlining the existing portfolio
Funds management business
The current economic environment has led to a sharp reduction
We are in due diligence for the acquisition of a portfolio of in liquidity and disposing of assets is challenging. We continue
properties on the African continent for Growthpoint Investec to manage assets to optimise their value over the long term
African Properties (GIAP) and expect the USD212m of capital and we remain committed to selling the assets that were
previously raised to be fully invested by the end of the calendar previously included in the R5.8bn portfolio that was put to
year. Most of the GIAP opportunities are in Nigeria, Ghana and market last year, whether by individual asset sales or smaller
Zambia. portfolios, where the appropriate value can be realised.
We are also in due diligence to acquire another hospital for Sixteen individual asset sales in excess of R3.1bn are in various
Growthpoint Healthcare Property Holdings (GHPH). stages of being concluded. Some were part of the R5.8bn
Construction of the Pretoria Head and Neck Hospital is well on portfolio but the majority were not.
track for completion in August 2020. Extensions to both the
Hillcrest and Gateway hospitals are also progressing well. 144 Oxford
We continue to assess new opportunities and are confident
that we will be able to grow the fund to scale.
The intention is to build a R15bn Funds Management business
over the next three to five years. This is essentially a capital-
light strategy where we will raise third-party funding for up to
80% in each fund, introduce gearing of approximately 40%,
with Growthpoint retaining no less than 20% but also earning
fees of between 1% and 2% of either NAV or GAV on 100% of
the assets under management. We remind investors that these
funds will all be separate and distinct, either by way of asset
type or geography, to Growthpoint’s existing RSA portfolio.
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SECTOR UPDATE
SOUTH AFRICA RETAIL
The market is the toughest we have seen with many headwinds The Edcon restructuring transaction is taking longer than
and all property key performance indicators are under pressure expected and is impacting arrears. All our agreements have
as a result thereof. now been finalised pending implementation. Interim
arrangements were made by Edcon, on an industry wide basis,
Vacancies: for a 50% rent deferral from February until completion of its
recapitalisation process, which is imminent. We initially
Vacancies edged up slightly across all three RSA portfolios with expected to conclude legalities and make a R110m equity
retail and office vacancies below industry averages, and investment by mid-May 2019, however, it now looks more
industrial slightly above. Total portfolio vacancies are 6.6% likely to conclude towards the end of June 2019. Suffice to say,
compared with 6.5% at HY19. arrears have increased as a result, but will normalise once
Edcon is recapitalised and arrear rentals are settled. Excluding
Arrears: Edcon arrears, this number is tracking past averages.
In this weakening economic environment, arrears are
La Lucia Mall
increasing. We remain close to our tenants to manage arrears
as best as we can. The office portfolio shows similar arrears to
HY18 at 4.9% of collectables and is down from 5.1% at HY19.
Retail has jumped significantly because of Edcon, which, in line
with interim arrangements, has only paid 50% of its rentals due
since February 2019. Its outstanding rentals will be settled once
it receives the proposed equity investment from investors at
the end of June 2019, which will return retail arrears to normal
levels. Industrial clients are under added pressure as a result of
both load shedding and the demise of the construction and
related industries, leading to an increase in arrears from 9.6%
of collectables at HY19 to 12.3%. Total arrears amount to
R99.4m.
Renewal success and renewal growth:
Our renewal success rate improved by 1%, from 67.7% to
68.7%. Retail renewals decreased from 85.0% at HY19 to As retailers consolidate and reduce their space, we expect
81.9%, and office renewals were marginally down at 62.2% vacancies to deteriorate. Edgars has vacated nearly 3 000m² at
from 62.6% at HY19. Industrial renewals increased from 63.7% La Lucia Mall in Durban and will not be renewing their lease on
at HY19 to 67.1% 30 September 2019 when it expires in Bloemfontein,
measuring c. 6 000m². Nu Metro will also vacate c. 4 000m²
Maintaining and improving our occupancy levels comes at a at Key West in Johannesburg by 31 March 2020.
high price, with an overall weighted average renewal growth
rate of -3.9%. This is slightly improved from -4.4% at HY19. Renewals are generally positive at stronger centres, but
Retail renewal growth deteriorated somewhat from -3.3% at negations are tough at the weaker trading ones, where
HY19 to -3.9%, but offices showed an improvement from renewals tend to be negative. The 81.9% renewal success
-8.9% to -7.2% and the industrial portfolio continues to show rate was achieved at the expense of rental growth.
positive growth of 1.1%, albeit slightly down from 1.5% at
HY19. Trading densities are also a mixed bag. Lower-middle-income
centres are showing some positive numbers, but there is no
Lease periods and escalations: clear theme coming from our upper-middle- and upper-income
centres. Smaller community centres with a good supermarket
On the positive side, we have seen renewal lease periods and a Woolworths are generally trading well, particularly in the
increase marginally from 3.5 years at HY19 to 3.9 years, and we Western Cape.
are securing future annual escalation rates of 7.5% for lease
renewals. On average, we are achieving 6% to 7% future escalations
upon renewal from national tenants.
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From an asset management perspective, our key focus is Our focus on greening the portfolio is ongoing and responds to
upgrading, strengthening and repositioning all major centres in demand for newer energy-efficient buildings. We aim to obtain
the core portfolio. The upgrades to both Lakeside Mall in a 5-Star Green Star Rating for our 144 Oxford Road
Benoni and Festival Mall in Kempton Park will be finalised by development in Rosebank, where enquiries are good. It is set
June 2019. A major positive development for Lakeside Mall is for completion by the end of the year with occupation from
that Pick n Pay and Dis-Chem will be moving into the former January 2020. We are in final negotiations with two tenants for
Nu Metro space, which has been vacant for some four years c. 10 000m² and are targeting co-working of at least 4 000m².
now. The upgrade at La Lucia Mall will be completed in The new Exxaro head office in Centurion was completed on
November 2019. H&M has opened at Walmer Park Shopping time and below budget and has been handed over. We were
Centre in Port Elizabeth and the centre’s new restaurant initially targeting a 4-Star green rating but are thrilled to have
offering has also opened. In Johannesburg, we have secured achieved a 5-Star Green Star certification. Lease
tenants for Northgate’s former Pick n Pay space of some commencement for c. 15 000m² of the 18 506m²
7,000sqm. In Rustenburg, we are relocating Dis-Chem from development was on 1 May for 10 years, with the balance being
the value centre to the new extension at the main Waterfall a five-year lease, which we expect to be renewed to secure
Mall. A mini refurbishment is also underway at Longbeach single occupancy.
Mall, Cape Town.
Office developments in Cape Town include 32 on Kloof for
OFFICE Workshop17, Draper on Main and Longkloof, where we have
signed a management agreement for a 150 guest-room hotel
Vacancies remained stable but are expected to increase to which will be the first on the African continent for the
around 11% for FY19, chiefly due to two businesses vacating a upmarket Canopy by Hilton brand. In KwaZulu-Natal,
combined roughly 9 000m² before year-end. One is exiting the Richefont in Umhlanga Ridge is progressing well with
country and the other is cutting costs. completion scheduled for July 2019.
Arrears are generally stable, but smaller tenants have been We have also concluded a lease for the c. 12 000m² of building
hard hit by the difficult economy. 33 at The Woodlands, Johannesburg, with engineering group
DRA Global, thereby successfully letting 100% of the Deloitte
The renewal growth rate for HY19 was negatively influenced space well in advance of it vacating in May 2020.
by two leases, ENS in Cape Town and Draft FCB at Pinmill Farm
office park in Sandton. This number is normalising, and we INDUSTRIAL
expect a reversion rate of around -6% for FY19. We are still
signing escalations at just over 8% average on renewal, which Vacancies are in line with HY19 levels. Large vacancies
is positive. However, given the low confidence levels, lease correspond with areas where letting is difficult. Growthpoint
terms are decreasing to an average of approximately four Business Park in Midrand is the largest vacancy at some
years. 22 000m². Regretfully, the offer for our property in Middleburg
fell through, leaving a 12 900m² vacancy.
Demand is contingent on the node, with Cape Town,
Bryanston and Rosebank performing well. Sandton currently Arrears as a percentage of collectables has increased with
has a glut of stock, and smaller office nodes are struggling. furniture and electrical tenants contributing to this number.
There is demand from owner-occupiers for smaller buildings
and we have concluded some successful sales as a result. Negations to attract and retain tenants are challenging and
Besides our ongoing efforts to dispose of the assets identified protracted; they are well informed and spoilt for choice. That
as non-core to the portfolio, we are also redeveloping and being said, renewal success is consistent with HY19 levels and
refurbishing certain core assets and look forward to eventually the industrial portfolio is the only one not showing negative
triggering the bridge from The Place at 1 Sandton Drive to reversions on renewal. Geographic diversity is certainly
Sandton City, no doubt making it one of the most desirable assisting renewals; we see growth in Cape Town and Durban,
buildings in the Sandton Central node. The project will also but negative reversions inland are dragging down the average
include the redevelopment of its common areas. renewal growth rate.
V&A Waterfront
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The industrial sector is still achieving escalations of 8% upon GLOBALWORTH REAL ESTATE INVESTMENTS LTD (GWI)
renewal.
In April, Growthpoint exchanged its shares in Globalworth
We have six developments in progress for our own balance Poland Real Estate (GPRE) for GWI and invested a further
sheet and two third-party developments for Bakers Transport. EUR15m bringing our holding in GWI to 29.9%. GWI now holds
The Samrand property set to transfer to Bakers Transport 99.6% of GPRE and is in the process of delisting it from the
before year-end, and the Cato Ridge property is on track for Warsaw Stock Exchange, post the expropriation of the
completion in October 2019. remaining minorities. This merger of GPRE with GWI gives us a
single, substantial point of presence in the region, making for a
Backup power has become an even bigger factor in the sector, much simpler structure.
with load shedding severely impacting businesses. Security is
also increasingly critical. In total, GWI completed a EUR500.5m capital raise through
the issue of new shares for cash (EUR347.6m) and in exchange
V&A WATERFRONT for GPRE shares (EUR152.9m). The additional proceeds will
fund the significant pipeline of attractive investment
Demand from blue-chip corporates for head office space opportunities in both Poland and Romania, and be used for
remains strong. The 8 300m² development for Deloitte is general corporate purposes. The raise will also assist GWI in
progressing well, with a rental commencement date of managing its gearing strategy to a long-term target LTV of
1 October 2020. Over and above the V&A developing below 40%. Consequently, Moody’s and S&P have both
c. 10 000m for Investec Bank, it is also the preferred bidder for upgraded GWI’s credit rating to Baa3 from Ba1 and from BB+
another 6 000m² of offices for a domestic corporate with a to BBB- respectively, resulting in an investment grade credit
rental start date of January 2022, but further details are subject rating from the three main agencies.
to confidentially until all agreements are in place.
GWI has acquired a further four office assets in Poland for a
Retail sales are up across restaurants, department stores, combined EUR283.1m. These acquisitions are consistent with
fashion and jewellery. The Woolworths extension is on track to GWI’s strategy of targeting well-located assets at attractive
open in December 2019, as is the flagship Apple store at Dock entry prices and with asset management opportunities:
Road Junction. We are seeing good turnover rentals at the
Watershed, which continues to perform very well.
Globalworth Campus
INTERNATIONAL
GROWTHPOINT PROPERTIES AUSTRALIA LTD (GOZ)
On 28 February GOZ announced it had successfully secured
10-year debt finance of AUD161m via the US private
placement (USPP) market. The issue was more than four-times
oversubscribed, which enabled GOZ to increase its offer size.
GOZ’s weighted average debt maturity will increase to
4.8 years from 3.9 years.
GOZ continues to recycle capital with the sale of two small
assets, one in Tasmania and one in South Australia. The
combined proceeds of AUD45.2m will be used to invest in the
developments at 3 Botanicca in Melbourne and the
1. Rondo Business Park at an 8.2% acquisition yield for
Woolworths distribution centre expansion at Gepps Cross.
EUR37m. The park comprises three buildings in Northern
Krakow and is adjacent to GWI’s Quattro Business Park,
GOZ currently owns 16.35% of APN Industria Reit (shortcode
thereby offering additional strategic asset management
now ADI, previously IDR) following a small capital raise, in
angles. It has a GLA of 17 800m², 90% occupancy, Capgemini
which GOZ did not participate. GOZ continues to assess
is the major tenant, and its WALL is 4.5 years.
alternatives for this stake.
2. Warsaw Trade Tower at a 6.8% acquisition yield for
Distribution guidance for FY19 has been reaffirmed at
EUR132.9m. This 38-storey tower is located in the Wola
AUD0.23 per share, however FFO guidance was upgraded on
district of Warsaw’s extended CBD and is one of the tallest
19 June 2019 from 24.8cps to at least 25.0cps implying a
buildings in the city. It has a GLA of 45 400m², 88%
maximum payout ratio of 92%.
occupancy, and is leased to, amongst others, AXA, Leroy Merlin
and American Express, with a WALL of 2.2 years.
Contact Lauren Turner (Head of Investor Relations) - T L 4
3. Retro Office House at a 6.6% acquisition yield for
The Boulevard
EUR58.8m. This newly completed multi-tenant office
development is located in central Wroclaw. It has a GLA of
21 900m² that is 100% leased with Olympus and Infor among
its tenants. It has a WALL of 5 years. This acquisition
is expected to close in July 2019.
4. Silesia Star at an 8.8% acquisition yield for EUR54.4m.
This office complex comprises two interconnecting buildings
developed in 2014 and 2016 in the heart of Katowice. It has a
total GLA of 29 200m², is 95% leased to various businesses in
the finance, technology and services sectors, and has a WALL
of 3.6 years. This acquisition is expected to close in July 2019.
TREASURY UPDATE
In April, Growthpoint placed R1bn of bonds:
R401m – five-year bonds at Jibar + 1.38% Millroad Industrial Park
R431m – seven-year bonds at Jibar + 1.59%
R168m – 10-year bonds at Jibar + 1.90%
The weighted average term of the debt book has been
extended to 3.4 years as at 31 March 2019.
Growthpoint’s weighted average interest rate on 31 March
2018 was 9.2% (9.1% HY19). Including cross-currency interest
rate swaps (CCIRS) and EUR loans, it increased to 6.9% (6.8%
HY19). At 31 March 2019, 84.9% of our interest rate book was
hedged with a weighted average term of 3.8 years.
88.0% of the expected distribution from GOZ for FY19 is
hedged at an average exchange rate of R10.87, and the
anticipated GOZ dividends cover the interest obligations under
the CCIRSs 3.5x for FY19.
Brooklyn Mall
93.5% of the expected dividend income from GWI for FY19 is
hedged at an average exchange rate of R17.56. The anticipated
GWI dividends cover the interest obligations under the loans,
CCIRSs and EUR interest rate swaps 2.2x for FY19.
On 5 June 2019 Growthpoint was the first domestic REIT to
successfully place a 10-year, CPI linked unsecured bond in a
private placement raising R600m. Growthpoint swapped this
out at an effective rate of Jibar +1.80%, which is lower than
both the Green Bond and the recent 10-year bond issue that
was placed. The bond lengthens the duration of the book with
a demand for 10-year paper for this product type.
We reaffirm that distribution growth for the financial year ending 30 June 2019 is expected to be 4.5%.
Contact Lauren Turner (Head of Investor Relations) | Tel: +27 (0)11 944 6346
Email: LTurner@growthpoint.co.za
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