JSE-listed REIT, Growthpoint Properties, delivered 12.5% growth in revenue for the six-month period that ended on 31 December 2020.
Distributable income for the same period was R2.5bn, and the company attributes the results to the better than expected performance from its South African portfolio.
Growthpoint has intensified its focus on right-sizing its portfolio and selling of non-core assets since 2017. To date, properties valued at R7.5bn have been sold.
“Despite little liquidity and a challenging sales environment, we sold five properties during the period for R497.7m at book value. We held two properties valued at R55.5m for sale at half-year end,” says Estienne de Klerk, Growthpoint Properties SA CEO.
The two non-core assets held for sale are an office property in Sunninghill and an industrial building in Kramerville.
“Growthpoint Properties’ domestic portfolio grew through mergers and acquisitions. These add a distinct portfolio of individual property assets, which collectively meet acquisition criteria, but includes those considered non-core.”
De Klerk says that disposing of assets has been challenging for the past few years, with banks being reluctant to lend to new buyers. Covid-19 has exacerbated the challenges, thus leading to a further reduction in liquidity for potential buyers in the market.
“We continue to manage assets to optimise their value over the long term, but remain committed to selling non-core assets. We will do this either by individual sales or in small portfolios, where the appropriate value can be realised. With a portfolio such as the size of Growthpoint Properties, asset recycling is an ongoing focus and process,” says De Klerk.
He says that development expenditure for the period was R533m with R181m of capital expenditure for two key office redevelopment projects. These included the Woodlands Office Park in Johannesburg, completed in February for Altron), and Longkloof Studios in Gardens, Cape Town, completed in March 2021.
Two of the largest projects include the specialist Cintocare Hospital in Menlyn, Pretoria, which opened in December 2020, and the construction of a turnkey data centre for NTT Ltd.
During the six-month period, vacancies spread across multiple buildings and all regions rose to 18%. During the full year results, vacancies were 15.4%.
Mainly as a result of weak renewal success rate, and tenants consolidating and reducing space
De Klerk notes that the KwaZulu-Natal and the Western Cape regions are performing better than Gauteng. Vacancies are concentrated in a few buildings, and in Cape Town in particular, in a new development called Draper on Main.
In Gauteng, the persistent vacancies reflect the State of the Province address, which indicated that Gauteng’s GDP for 2020 was R1 trillion, equivalent to that of 2012 – indicating that a decade of growth has been wiped out!
Additionally, Gauteng’s GDP for 2020 contracted 17%, whereas South Africa contracted 7.1%. Gauteng’s contribution to the country’s GDP was only 34% – much lower than in previous years.
Despite this, Growthpoint acquired a R70m DRA office property in Sunninghill. De Klerk says this was one component of a larger strategic value-adding transaction previously concluded, adding that, alone it is not a core holding.
Future of the office sector
He explains that ‘work-from-home’ is likely to become part of the working mix, but will not replace offices. Business failures are placing pressure on occupancy, rental and demand, but there are still deals to be done, even in this market.
“We get requests based on innovative thinking to accommodate social distancing requirements and flexibility. As a result, we are challenging ourselves to find new and creative approaches to meet clients’ evolving needs.”
Growthpoint believes that while most corporates will need a policy to accommodate flexible working arrangements, they will also need more space in general, as the trend in recent years has been that of densification of offices, whereas now more space will be required for social distancing.
Edited by Gudrun Kaiser