REIT Powerhouse Growthpoint Properties Triumphs Amid Economic Challenges

  • Growthpoint Properties approved as a REIT by JSE, reflecting its commitment to core strategies and international expansion.
  • Positive leasing activity with over 940,000 square meters leased, despite challenging economic conditions in South Africa.
  • Disciplined capital allocation approach through asset sales and successful refinancing of Eurobond amidst rising interest rates.
Growthpoint Property

Growthpoint Properties Limited, a leading real estate investment trust (REIT) in South Africa, has recently been approved as a REIT by the Johannesburg Stock Exchange (JSE). This significant milestone reflects Growthpoint’s commitment to its core strategies and its dedication to optimizing its portfolio, generating income and equity returns, and expanding internationally.

In the investor update for the nine months ending on March 31, 2023, Growthpoint highlighted its focus on three core strategies: optimizing the South African portfolio, producing income and equity returns through Growthpoint Investment Partners, and international expansion. Given the current unfavorable global economic environment and the need to maintain a strong balance sheet, the company is currently prioritizing the optimization of its existing international investments.

Despite challenges posed by unfavorable economic conditions, frequent power outages, and political uncertainty in South Africa, Growthpoint showcased positive leasing activity during the nine-month period. The company successfully leased over 940,000 square meters of space, including both renewals and new leases, while also improving the portfolio renewal success rate to 63.9%.

However, rising interest rates have had a negative impact on results, affecting both the international and domestic real estate sectors. Growthpoint successfully refinanced its USD425 million Eurobond, which matured in May 2023, despite the challenging international debt market conditions.

Key Performance Indicators (KPIs) as of March 31, 2023, revealed the following figures:

  • Vacancy rates: Retail – 6.1%, Office – 20.1%, Industrial – 5.0%
  • Renewal success rate: 63.9%
  • Weighted average renewal growth rate: -14.3%
  • Weighted average renewal lease period: 3.5 years
  • Total arrears: R166.5 million

Growthpoint’s disciplined capital allocation approach has allowed the company to fund capital and development expenditures through asset sales. To date, Growthpoint has sold and transferred 28 non-core properties for R1.1 billion, generating a profit of R3.3 million over book value. The company has also approved the sale of additional properties valued at approximately R500 million.

In the retail sector, Growthpoint experienced a recovery with trading densities growing by 9.8% during the nine-month period. The company addressed significant vacancies through letting strategies, property disposals, and redevelopments. Notable redevelopment projects include Bayside Mall in Cape Town and River Square Shopping Centre in Vereeniging.

The office sector saw stable vacancy rates at 20.1%, with growing demand observed in specific regions such as the Western Cape, KwaZulu-Natal, and Rosebank in Gauteng. Growthpoint continues to focus on retaining tenants through lease renewals and downsizing opportunities.

Within the industrial sector, vacancies increased marginally to 5.0%. Growthpoint is strategically selling non-core assets and focusing on core investments, especially in coastal areas where demand is high and vacancies are low.

Growthpoint’s trading and development team contributed to the company’s domestic portfolio through redevelopments, extensions, and refurbishments. The team completed two student accommodation properties and is working on the extension of Hillcrest Hospital and the healthcare campus at Cornubia for Growthpoint Healthcare REIT.

V&A Waterfront, a precinct owned by Growthpoint, experienced a rapid recovery due to increased international tourism and the resumption of events. Retail sales surpassed pre-pandemic levels by 30%, and the hotel sector saw improved revenue per available room (RevPAR).

Looking ahead, Growthpoint plans to finance its development costs at V&A Waterfront using external debt and has secured a R1 billion revolving credit facility.

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