JSE-listed Growthpoint Properties’ dividend a share increased by 8.4% to 128.4c for the year ended June 30, compared with 118.5c for the 2021 financial year.

“We are steadily optimising our South Africa portfolio. Our South Africa business is well positioned with a strong balance sheet and good liquidity, and we are encouraged by the improvements in the industrial and retail portfolios.

“However, the performance of commercial real estate and the office sector especially, correlates closely with South Africa’s economic health, which remains weak and is constraining our local growth prospects,” CEO Norbert Sasse says.

He says the group evaluates each element of the portfolio on an individual basis to see how best to optimise the space, depending on the trends and demand.

Sasse says that, despite the market conditions in the office segment, Growthpoint’s diversified position has enabled it to deliver improved performance metrics for the financial year under review.

Growthpoint delivered a 13.9% increase in South African real estate investment trust (Reit) funds from operations (FFO) of R5.3-billion and a 5.1% increase in distributable income per share (DIPS) of 155.6c for the period.

Group property assets grew by 5.2% to R160.8-billion.

Sasse attributes this defensive performance to the rapid rebound of the V&A Waterfront and an “excellent” performance from ASX-listed Growthpoint Properties Australia (GOZ), improved South African finance costs and steadily growing contributions from Growthpoint Investment Partners.

“Growthpoint’s improved results show the resilience and stability of our business, and the benefits of diversification and quality earnings during yet another incredibly tough year,” he notes.

Growthpoint posits that its share price remains significantly undervalued compared with its South African Reit net asset value of R21.58 apiece, which grew by 6.7%.

During the year, Growthpoint continued to reinforce its liquidity and balance sheet strength to enhance its ability to achieve its three strategic thrusts of international expansion, South African portfolio optimisation and growing its new income streams from assets under management by Growthpoint Investment Partners.

It decreased its South Africa Reit loan-to-value (LTV) from 40% to 37.9%. In line with its improved performance, Growthpoint adopted a higher 82.5% dividend payout ratio, retaining R935-million before tax to fund capital expenditure and development and execute on its strategies, while ensuring balance sheet strength.

It ended the period with R1.5-billion cash on the South Africa balance sheet and R10.3-billion of unused South Africa committed debt facilities. This includes contingencies for the upcoming maturity of its USD Eurobond of R6.9-billion in May 2023, which Growthpoint says it will be in a position to repay should debt capital markets in Europe not be conducive to refinancing.

Growthpoint’s international investments represent 43.5% of property assets by book value and 28.4% of earnings before interest and taxes, and its newly amplified targets are 50% and 40% respectively. The hard currency dividend income from its international investments increased from R1.4-billion to R1.5-billion.

Vacancies in Growthpoint’s industrial portfolio improved from 9.4% to 5.7%, with particularly good letting highlighted in the Western Cape and KwaZulu-Natal where vacancies are around 2%.

Growthpoint’s 50% interest in the V&A Waterfront, Cape Town, improved its earnings considerably to deliver a strong performance with a 52% increase in net property income.

“All major sectors are enjoying low vacancies and strong demand at the V&A Waterfront. Its rebound is set to continue and we expect it to achieve higher than pre-Covid earnings in full-year 2023,” says Sasse.

For the year under review, renewal success rates increased considerably, from 62.2% to 86.3%. Reflecting the positive metrics, industrial property values increased by 1.8% and like-for-like net property income grew 3.7%. Capitalising on the demand for industrial properties, 22 non-strategic property assets were disposed of during the year, and another 19 properties are at various stages of disposal.

Office vacancies levelled off, reducing from a 22.4% peak on March 31 to 20.7% at year-end. More tenants are returning to offices with a hybrid working model and smaller users that previously gave up space are also returning.

Renewal success improved from 52.5% to 58% in a market where tenants continue to consolidate and reduce space. Reflecting the weak economic environment, although both improved, office property values and like-for-like net property income decreased by 5.4% and 8.7% respectively. To shift Growthpoint’s office exposure to higher-performing regions, nine office properties were sold.

Retail portfolio vacancies improved to 4.7% excluding offices, with a slightly higher renewal success rate of 85.0% and increased letting activity from national retailers.

The contribution to distributable income from trading and development was noted as somewhat down at R146.2-million for the year. Growthpoint invested R1.1-billion in development and capital expenditure in South Africa and has R654-million of capital commitments.

Growthpoint continued its solar energy drive during the year and is targeting solar generation capacity of 27.1 MW by the end of full-year 2023.

This year, the Growthpoint board approved its Ethics Strategy, as well as its new Local Economic Development and Transformation (LED) policy for engaging with businesses in local communities where Growthpoint operates.

Growthpoint Investment Partners closed the financial year with R15.6-billion of assets under management, surpassing its R15-billion target which it aims to grow to R30-billion by the end of full year 2027.

In the period, Growthpoint Healthcare Reit concluded an $80-million equity and convertible debt package with the International Finance Cooperation to finance growth opportunities.

“Growthpoint Investment Partners is strategic for our immediate growth of assets under management rather than assets on the balance sheet. We intend to increase the scale of our three investment platforms and seek meaningful new co-investment opportunities that are distinct from Growthpoint’s core assets in the retail, office and industrial sectors,” says Sasse.

Growthpoint says that its diversified portfolio, strong balance sheet and stable hard currency dividend income streams position the company defensively for the full-year 2023.

However, given the high level of uncertainty in the local and global macroeconomic environment, coupled with rising interest rates and inflation, direct investment portfolios growth for that period is expected to be muted.

Growthpoint has declared final dividend number 73 of 66.90c apiece for the period, from income reserves.