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COVID–19 National Lockdown Alert Level 5 & 4 impact on Growthpoint’s business - GRTI
GROWTHPOINT PROPERTIES LIMITED
(Incorporated with limited liability in the Republic of South Africa under registration number 1987/004988/06)
(Bond issuer code: GRTI)
(“Growthpoint” or the “company”)
COVID–19 NATIONAL LOCKDOWN ALERT LEVEL 5 & 4 IMPACT ON GROWTHPOINT’S BUSINESS
Introduction
The safety and well-being of our people, tenants and other stakeholders remains our top priority as
we focus on safeguarding our business, protecting our assets and minimising our exposure to the
impact of COVID-19.
The Board would like to thank the entire Growthpoint team for their ongoing commitment and
dedication in managing the business through this crisis.
Country update
South Africa has 15 515 confirmed COVID-19 cases and has registered 264 deaths. After President
Cyril Ramaphosa declared a National State of Disaster, the country went into hard lockdown, under
Alert Level 5, on 27 March 2020 and remained there for the entire month of April. On 1 May 2020,
South Africa entered a new phase of the lockdown and progressed to Alert Level 4. This new risk-
adjusted strategy aims to ease the lockdown in stages.
As an international business, Growthpoint has investments across many geographies, all of which are
impacted by this global pandemic. Growthpoint Properties Australia (GOZ), Globalworth Real Estate
Investments (GWI) and Capital & Regional plc (C&R) are all separately listed entities, and
shareholders are encouraged to refer to the market update announcements directly from these
entities for specific information about the impact of COVID-19 on their businesses.
Anecdotally, GOZ and GWI, with their exposure to office and industrial, have been less impacted
than C&R with its sole exposure to retail, by the Covid-19 pandemic.
V&A Waterfront
The V&A Waterfront is significantly impacted by COVID-19, considering some 66% of its net property
income comes from the retail and hotel sectors. Both these sectors depend heavily on foreign
tourism, with c. 50% of retail sales and c. 80% of hotel occupancies coming from international
tourists. Collections for these two sectors for April and May 2020 have been low, decreasing
collections for the entire V&A to around 50% of total billings. Both international and domestic travel
ceased in mid-March. International tourism is likely to take a long time to return. The South African
population will undoubtedly emerge from this crisis much poorer, given the many layoffs and
retrenchments, no bonuses and salary increases, and with staff share options now being worth
significantly less. Thus, a rapid rebound in domestic tourism is unlikely.
Rental discounts of R19m were passed for April 2020 and some R7m for May 2020, mainly to
retailers. They are in line with the recommendations of the Property Industry (PI) Group. Rental
discounts of around R1m in each month were provided to the marine and industrial sector,
specifically to the helicopter operators who are very reliant on international tourism. Rental
deferments were also offered to a number of hotel operators.
RSA portfolio update (excluding V&A Waterfront)
Growthpoint has assisted its most affected tenants, mainly small, medium and micro enterprises
(SMMEs), with rental relief granted in April 2020 & May 2020 to date as follows:
APRIL 2020 ALL SECTORS Retail Office Industrial Healthcare
Billings (R) 1,035,644,209 381,844,470 439,107,803 187,744,639 26,947,297
Collections (R) 735,478,230 178,291,296 403,478,283 153,261,916 26,915,709
Collections % 71% 47% 92% 82% 100%
Total relief (R) (99,218,437) (38,643,784) (31,022,707) (29,551,947) -
MAY 2020 ALL SECTORS Retail Office Industrial Healthcare
Billings (R) 951,662,856 377,819,562 389,731,718 158,197,668 25,913,908
Collections (R) 665,098,710 203,948,959 314,219,901 122,940,767 13,582,759
Collections % 70% 54% 81% 78% 52%
Total relief (R) (100,834,639) (26,330,405) (29,720,024) (29,520,904) (15,263,307)
*All figures are inclusive of VAT
Growthpoint’s billings are usually in the region of R1.1bn per month. We billed less in May than in
April 2020, with some credits passed for April 2020 and all credits passed so far for May 2020
reflected in May’s billings. Billings and collections remain fluid with additional requests for relief
being received daily. At year end (30 June 2020), we will be in a better position to quantify total
arrears and relief granted in the form of discounts and deferment of rental. Relief passed in April
relates to actual relief passed for that month whereas relief passed in May 2020 includes relief
granted for both April 2020 and May 2020.
Retail
Of the three South African commercial property sectors, retail was most negatively impacted
because of the far-reaching effects on the retail industry by the lockdown under Alert Level 5. All
shops were required to close except for those selling essential goods, being mostly grocery and
pharmaceutical retailers and banking.
The PI Group was established to address various collective workstreams for the sector, one being
providing rental relief to retailers. Retailers were graded according to the severity of the impact of
lockdown under Alert Level 5 as well as their size, and assistance was offered accordingly. Retailers
selling time or perishable goods, and unable to make up those sales, are in the highly impacted
category.
Based on this grading, Growthpoint’s retail portfolio comprises:
Retailer type % GLA
Listed non-essential 27%
Essential and fully trading 22%
Medium & large unlisted non-essential 18%
Essential and partially trading 16%
SMME 1 (highly impacted) 9%
SMME 2 (moderately impacted) 7%
SOE/Government 1%
Growthpoint is acting in line with the PI Group’s retail tenant assistance and relief guidelines to
sustain severely impacted retailers through the hard lockdown. We have provided retail rental relief
to a total of 1 494 SMMEs, of which 694 are in the highly impacted SMME1 category and 800 in the
moderately impacted SMME 2 category. We are still finalising rental relief for all other medium,
large and listed retail tenants for April 2020 which, if an agreement is reached, may still reflect in
May 2020.
We rejected the offer from the top five fashion retailers to pay only 20% of rates and rental for April
2020. Together with the PI Group, Growthpoint has approached the National Government to
mediate. We are, however, making progress with negotiations with four of the five retailers. As
such, we expect retail collections to improve as these retailers start paying their rental.
Under Alert Level 4, the lockdown was eased for retail from 1 May 2020. More retail categories were
permitted to resume trading, including retailers selling winter clothing, footwear, stationery and
educational books, bedding, selected beauty products, computers, cellphones, hardware and home
office equipment.
The PI Group is liaising with the Government to agree on a phased approach to reopen shopping
centres safely. Non-discretionary shopping patterns are expected to start normalising, but we are
aware that the way some people shop has shifted during this period. A protracted recovery is
projected for tenants in the restaurant, entertainment and travel industries.
Our figures reveal a massive spike in retail trade towards the end of March as people stocked up on
essential items in preparation for the hard lockdown. Shopper numbers across our portfolio were
about 50% to 60% of normal counts for April 2020. Convenience and community shopping centres are
proving to be more resilient with people shopping locally in their neighbourhoods during the
lockdown and generally not travelling to larger malls. At our lower LSM centres serving shoppers that
rely on public transport, April 2020 footfall decreased by 90%.
As ever, we remain focused on retaining tenants. Before the COVID-19 crisis, the retail sector was
facing many headwinds with tough renewal negotiations, and this is likely to continue.
On 29 April 2020, Edcon went into voluntary business rescue. Our Edcon exposure post the sale of
CNA is 88 000sqm and Jet accounts for approximately 20 000sqm of this. If there is interest from
third parties to acquire Jet, or other parts of the business, that may result in a positive outcome for
our exposure. For the Edgars stores within our portfolio, we are investigating options to subdivide
this space and introduce a second supermarket anchor, where possible, which is a costly exercise. In
the interim, the entire industry has received an offer from the business rescue practitioner to pay
only turnover rental for the next few months, which we are evaluating.
Office
Before the COVID-19 lockdown response, the office sector was under the most pressure as a result of
South Africa’s sustained depressed macroeconomic environment. However, our tenant base of large
and significant listed and blue-chip businesses have been paying their rent during the hard lockdown.
Some smaller office tenants have asked for relief. We consider requests based on each tenant’s
industry exposure since the impact of the lockdown has been more severe in certain sectors. Travel
industry tenants, for example, have been profoundly impacted. In most instances, we have provided
partial or full rental deferments for April and May with recoveries over three to six months. A
handful of tenants, such as coffee shops in office parks, have negotiated discounts. Where
appropriate, we extend leases in return for rental deferments.
The feedback from our office tenants is mixed. Many businesses are desperate to get back to their
offices as they are missing the contact and collaboration afforded by their workspaces. Others have
adopted technology and adjusted well to remote working, which could result in decreased space
needs in future. However, workspace density is an issue because of social distancing measures. Less
dense workspaces would either increase businesses’ space requirements or potentially have a net-
zero effect on office space, with businesses having some staff working remotely and others in offices
that support social distancing.
Environmental issues such as ventilation and clean air are also likely to come into sharper focus for
workspaces, and certified green buildings are among those best positioned to provide superior
healthy working environments. Growthpoint owns the most significant number of green-certified
buildings in South Africa.
Sensibly, there are very few new office developments adding to the general oversupply of office
space. Our redevelopment at the Woodlands Office Park has been delayed, but construction is
expected to resume in phases as the lockdown eases. However, the delay has pushed out the
commencement of rental income from new occupiers.
Several tenants in the ITC sector and grocery delivery industries are expanding and require more
space.
To date, we have received no requests from tenants for closure.
Industrial
Tenants of all sizes across the industrial sector have been impacted. For logistics and storage
businesses, in Alert Level 5, only limited essential goods could be transported. Manufacturing and
assembly largely came to a halt. In South Africa’s consumption-based economy, tenants in the
import and export business are restricted by the closure of our borders.
We remain focused on retaining tenants and have provided rental relief to certain profoundly
impacted industrial tenants.
Similar to the office sector, no requests for lease termination have been received to date.
Growthpoint Healthcare Property Holdings
Typically a very defensive sector, Healthcare has not been immune to the business slowdown as a
result of the mandated COVID-19 lockdown, with elective surgeries coming to a standstill and placing
pressure on some tenants’ cash flows. While all tenants paid their rent in April 2020, requests for
rental deferments have been received for May 2020 and June 2020. Negotiations are continuing.
Adopted measures
The entire Growthpoint team has worked around the clock since the National State of Disaster was
declared, managing cash flows and implementing measures to ensure the longevity of our business,
and those of our tenants and our many other partners, as well as the safety of our employees,
customers and communities.
Asset/Property management
For April, all suppliers were paid in full regardless of the capacity of their service, to ensure that
they could pay their staff. However, this is not sustainable. Growthpoint is analysing all property
management services in light of what is essential and non-essential to identify potential cost savings.
To preserve our cash flows, we have moved to a single monthly supplier payment run, between the
25th and 27th of the month, instead of the previous system of two payment runs.
Capital expenditure
We have invested significantly in our properties in recent years to ensure they are attractive to
tenants, which stands us in good stead. All capital spending, except essential work, was halted with
the lockdown. At HY20, we reported that R282m capex had been spent with a further R289m
projected for FY20. We anticipate that this spend will decrease dramatically in following period.
Developments
Preserving our balance sheet, we have significantly scaled back our construction and development
programme. Only projects with considerable pre-lets or where construction is already substantially
completed will advance. We had commitments of R1.1bn at HY20 and are reviewing and assessing all
projects.
On a very positive note, we are delighted to announce that Anglo American will be occupying 29
000m² of the total 36 000m² at 144 Oxford Road in Rosebank and that the building is now fully
committed.
Human Resources and administration
Growthpoint’s Group CEO, SA CEO and Group FD have all pledged one-third of their salaries for three
months to the Solidarity Fund to assist those most affected by the impact of the COVID-19 pandemic.
The Chairman and several Non-Executive Directors of Growthpoint are also donating a third of their
board meeting fees for the third quarter of the financial year to the Solidarity Fund.
Most of our employees continue to work from home. We have prioritised the safe return to the
workplace of 154 employees who were, based on the nature of their positions, unable to work
remotely during the hard lockdown. On 4 May 2020, we welcomed 41 employees back to our Sandton
Central office. Our maximum daily capacity under Alert Level 4 in Sandton is 69 people. On 7 May
2020, 10 staff members returned to our Cape Town office, and eight employees returned to our
Durban office, the maximum capacities at these regional offices under Alert Level 4 are 20 and eight
respectively. Strict protocols have been put in place across all offices, including temperature checks
on arrival, providing masks to be worn at all times, as well as increased hygiene and sanitising
procedures.
Capital management
We monitor our cash flow and liquidity positions daily. Since our last update on 26 March 2020, we
have secured a R750m bank loan for three years, and we are in the final stages of negotiating a
further R900m, also for three years. While we have seen base interest rates decline, margins have
increased in this uncertain environment.
Outlook
The excellent quality and diverse nature of our portfolio of properties and overall client base,
coupled with prudent cash-flow management mentioned above, as well as the strength of our
balance sheet entering the COVID-19 crisis, should stand us in good stead during this unprecedented
time.
While the lockdown has loosened from Alert Level 5 to Alert Level 4, the uncertainty and long-
lasting Government measures as we move through the various alert levels of the lockdown are
making it impossible to determine the full impact on the business. However, we endeavour to take
all necessary measures to mitigate the negative impacts of the COVID-19 crisis on our business.
Our next COVID-19 impact update will be on 22 June 2020 together with our pre-close update.
Sandton
19 May 2020
Debt Sponsor
Absa Bank Limited (acting through its Corporate and Investment Bank division)
Date: 19-05-2020 05:30:00
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