Wrap Text
Investor Update for the three nonths ended 30 September 2020
Growthpoint Properties Limited
Approved as a REIT by the JSE
(Incorporated in the Republic of South Africa)
(Registration number 1987/004988/06)
Share code: GRT ISIN ZAE000179420
("Growthpoint" or “the Company”)
INVESTOR UPDATE FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2020
We are pleased to present you with the FY21 first-quarter trading update for 1 July to 30 September 2020.
Our three stated strategic thrusts – internationalisation, new income streams from funds management and third-party
trading and development, and streamlining and optimising our RSA portfolio - remain relevant. Our funds management
strategy is particularly well positioned for growth in this market, with its capital efficient structure.
Our priority in this environment is strengthening our balance sheet in the short term, which will enable Growthpoint to
continue pursuing these strategies in future. Thus, this update concentrates on the developments within our South African
business that have material impacts on our balance sheet. Our international businesses, Growthpoint Properties Australia
(GOZ), Globalworth Real Estate Investments (GWI) and Capital & Regional (C&R) have all published their most recent
market updates, and we ask that you also read these documents.
As in almost every economic sector globally, the effects of the COVID-19 pandemic on our business and our tenants are
significant. It will take some time before anyone can accurately measure the full impact of the pandemic and the
restrictive and protective measures imposed to curb it.
Growthpoint has given a further R50.4m in discounts to tenants as well as an additional R19.3m in deferrals while R66.2m
of deferrals were recovered during the quarter. Highlighting the pressure that our tenants are under, tenant arrears
increased to R594.4m at end-September from R511.0m at end-June.
To provide the most transparent picture of our business during the COVID-19 crisis, we began publishing monthly
collections. Since year-end, we have revised our methodology of calculation to improve the accuracy of our reporting
going forward and as such the collections percentages for prior months have been restated based on the new methodology.
RSA portfolio update
The South African macroeconomic environment was already under pressure before the COVID-19 pandemic. While some
local business confidence has returned during the quarter from all-time low levels, market uncertainty and the absence
of a clear positive catalyst for economic improvement has placed pressure on all property fundamentals and the key
performance indicators (KPIs) in our South African business.
KPIs as of 30 September 2020
Trade & Total as of 30 June
Retail Office Industrial Healthcare Development Total 2020
Vacancy 5.80% 17.84% 8.62% - - 10.63% 9.50%
Renewal success rate 83.52% 68.58% 58.10% - - 65.00% 66.40%
Weighted average renewal growth rate: 1 July 2020 - 30 September 2020 -11.55% -13.19% -13.32% - - -12.90% -6.70%
Rolling 12-month renewal growth to 30 September 2020 -6.87% -10.62% -7.88% - - -8.60%
Quarterly build-up of FY20 weighted average renewal growth -6.20% -8.90% -4.70% 5.30% - -6.70%
Weighted average renewal growth rate: 1 July 2019 - 30 September 2019 -8.20% -11.00% -5.90% 3.30% - -8.00%
Weighted average renewal growth rate: 1 October 2019 - 31 December 2020 -4.50% -1.80% -0.20% 0.00% - -3.30%
Weighted average renewal growth rate: 1 January 2020 - 31 March 2020 -4.30% -12.50% -5.90% 7.20% - -8.70%
Weighted average renewal growth rate: 1 April 2020 - 30 June 2020 -8.10% -9.90% -4.40% 0.00% - -7.50%
Weighted average renewal lease period 3.95 years 6.39 years 3.29 years - - 4.5 years 3.7 years
Weighted average future escalations on renewals 8.25% 7.18% 7.52% - - 7.50% 7.00%
Total arrears 274,769,285 171,673,591 117,908,954 28,979,646 1,049,215 594,380,691 510,967,503
Arrears 270,779,528 129,642,411 98,335,911 123,446 1,014,257 499,895,553 369,565,181
Deferrals not yet recovered 3,989,756 42,031,180 19,573,043 28,856,200 34,958 94,485,137 141,402,322
Collections for the month of September 2020 96.4% 99.8% 98.3% 99.7% 99.7% 98.2% 111.9%*
Collections: January 2020 - March 2020 100.0% 99.9% 98.6% 100.0% 97.4% 99.7%
Billings: January 2020 - March 2020 1,186,465,549 1,199,060,327 558,135,941 85,245,082 29,930,695 3,058,837,594
Collections: April 2020 - June 2020 81.4% 94.7% 91.9% 99.9% 104.7% 89.5%
Billings: April 2020 - June 2020 885,133,344 1,021,067,873 466,909,941 48,124,551 15,164,693 2,436,400,402
Collections: July 2020 - September 2020 93.6% 96.7% 95.0% 99.9% 98.8% 95.3%
Billings: July 2020 - September 2020 1,055,214,609 1,060,894,549 559,642,522 67,219,890 16,424,821 2,759,396,391
COVID-19 rental discounts granted: 1 July 2020 - 30 September 2020 37,501,567 8,899,551 4,009,087 - - 50,410,205 277,994,083
COVID-19 net rental deferrals: 1 July 2020 - 30 September 2020 (119,801) (24,493,510) (26,437,991) 4,099,160 34,958 (46,917,185) 141,402,322
COVID-19 rental deferrals granted: 1 July 2020 - 30 September 2020 1,347,464 5,260,764 8,487,425 4,112,063 40,883 19,248,599 158,793,447
COVID-19 rental deferrals recovered: 1 July 2020 - 30 September 2020 (1,467,265) (29,754,274) (34,925,417) (22,903) (5,925) (66,175,784) (17,391,125)
*84% per FY20 results presentation
Office
Many tenants are waiting to assess the effects of the pandemic before committing to office space, resulting in low new
letting levels of 11 731m² in the first three months of FY21.
We achieved a renewal success rate of 68.58% with 74 996m² of the 109 352m² of leases expiring in the period being
renewed. Making a meaningful contribution to this accomplishment, we signed a 10-year lease with Absa for nearly 35
000m² across three buildings. Supporting sustainable income streams, we have extended lease periods. The weighted
average renewal lease term increased from 3.8 years at the start of the quarter to 6.39 years at its close, based only on
the renewals in the first quarter. Absa’s lease was the main driver of the significantly longer weighted average lease
period for the portfolio this quarter, and this number is higher than it is likely to be for the balance of the financial year.
Even so, lease lengths are clearly trending longer in the portfolio.
Longer lease periods, however, are being attained at the expense of renewal rental growth. When measured in the first
quarter this KPI is always distorted by a small sample of leases, it tends to level out over the financial year as more leases
are renewed, as seen in the quarterly build-up of the FY20 weighted average renewal growth in the table above. At end-
September it was -13.19%. We have also provided a 12-month rolling renewal growth figure for this quarter. With an
oversupply of space in the market and pressure on occupancy levels, rental renewal growth will inevitably face continued
pressure across the entire sector. Tenant retention remains our focus.
Non-renewals added 34 000m² of vacancy of which 7 000m² relates to renewals with reduced space requirements. Leases
terminated over some 16 500m² of space, added to the vacancy.
We are being approached for early renewals with longer leases in exchange for reduced rentals or space and are assessing
each case on its merits. Some large tenants who wish to give up space are offering cancellation fees. These discussions
will invariably increase vacancies.
Retail
All of our retailers were open and trading by the end of the quarter, with restaurants, cinemas and gyms still subject to
certain operational restrictions. Value fashion, electronics and the home and décor retail categories are outperforming
all others in our portfolio, showing that shoppers prioritise value during difficult times and reflecting the unprecedented
amount of time spent at home during the pandemic. Ladies fashion, workwear and occasional wear continue to lag last
year’s sale levels. Cinemas, coffee shops and restaurants will take longer to recover.
The 83.52% renewal success rate was achieved by renewing 39 658m² of the 47 481m² that expired in the period.
2
Weighted average future escalations on renewals increased from 6.3% to 8.25% during the quarter. Again, this reflects a
trade-off of longer lease terms and higher rental escalations for lower renewal rental growth.
Renewals were concluded at a weighted average renewal growth of -11.55% in an extremely competitive and challenging
context, clouded by uncertainty and poor retail performance. Retailers are focusing on cost containment and reduction
and using rentals and escalations as tools to achieve this, resulting in downward pressure on rental levels at lease expiry
and, in a few extreme cases, mid-lease. Consequently, the weighted average rental renewal growth on expiry continued
to move backward.
Edcon arrears accounted for R73.46m at end-September compared with R45m at 1 July 2020. We have successfully let
80 000m² of our total 89 000m² exposure to the new purchasers of the Edcon brands.
Industrial
Most of our industrial tenants operate in the manufacturing, construction, mining, trade and transport sectors, which were
subject to negative GDP growth ranging from 76.6% to 67.6% this quarter. These businesses are, understandably, re-
evaluating their strategies and cutting costs to remain sustainable. Unfortunately, some have already succumbed to the
combined effects of the pandemic lockdown and an ailing economy, and liquidated or gone into business rescue. The
consequences impacted the entire sector and can be seen, to some extent, in our KPIs.
Leases over 185 600m² of industrial space expired during the quarter, of which 107 826m², or 58.10%, was renewed with
a weighted average renewal growth rate of -13.32%. Economic pressures resulted in industrial vacancies across South
Africa spiking, leading to a drop in average market rentals. Industrial businesses are striving to capitalise on tenant-
friendly market conditions and are seeking more favourable lease terms, and landlords are acquiescing in order to minimise
their property holding costs.
Overall industrial vacancies moved from 7.1% to 8.6% during the quarter. The lowest vacancy levels are in Durban (6.5%)
followed by Cape Town (8.1%) and the Johannesburg region (9.7%).
V&A Waterfront
We are pleased to report that visitors to the V&A Waterfront increased significantly during the quarter, with the footfall
over weekends reaching around 65% of normal levels and some 60% during the week. There is a direct correlation between
footfall and retail sales. Opening South Africa’s borders to international travel was a welcome development, but the V&A’s
major markets remain on the red list with restricted entry to the country. The lack of international tourism continues to
have a material impact on the hospitality and tourism sector in South Africa, which is impacting the V&A’s hotels, high-
end retail stores, restaurants, tourism-focused retailers, leisure and attractions. The robust office sector at the Waterfront
advantageously includes a high percentage of blue-chip tenants, however, their slow return to the office means lower
footfalls during the week.
Only nine of the roughly 450 retail stores have not yet re-opened, including five restaurants, three high-end jewellers,
and one tourist-focused store. The Watershed, which has around 150 tenants who sell unique items and arts and crafts, is
now open four days a week, from Thursday to Sunday.
The V&A has 13 hotels, of which 10 are partially open, with plans for one more to welcome guests before the end of the
year. The remaining two hotels should open when international travel restrictions ease further.
Gross revenue for the quarter was 41% below the same period in 2019, driven by a 53% drop in retail and hospitality. The
V&A’s low combined vacancy level edged up slightly to 2%, mostly due to some increased retail vacancy, not counting the
ex-Edgars premises redevelopment. Gross arrears increased to R235m at the end of September 2020 compared to R222m
as of 30 June 2020. Both amounts exclude the provision made for discounts. As of 30 June 2020 the provision for discounts
was R101m, R28m was subsequently released and a further provision of R48m was made in the quarter, bringing total
provisions for discounts to R121m.
During the three months, total discounts to the value of R113m were processed while rental deferments of R11.3m were
granted during this period.
Retail
• Retail sales for September amounted to R278m, or 62% of sales in September 2019, largely due to decreased
jewellery, curio and restaurant trade.
• Of the total R113m of discounts processed and total R48m of additional discounts provided for during the
quarter, R84m and R25m respectively related to the retail sector.
• Footfall for July to September was down 52% from the same quarter in 2019.
• Footfall is currently averaging about 25 000 people per day during the week, rising to around 50 000 visitors per
day over weekends.
Offices
• Vacancies remain relatively low at 2.5% of gross lettable area.
• Of the total R113m of discounts processed and R48m of additional discounts provided for during the quarter,
R3m and R9m respectively related to the office sector.
• The portfolio has stabilised, with minimal further rental relief being granted.
• Enquiries for office space have slowly started to increase, but asking-rentals remain under pressure. The focus is
on tenant retention.
• Major office tenants are slowly returning to their workplaces.
Hotels and residential
• Residential vacancies increased but have stabilised at levels slightly above normal.
• Of the total R113m of discounts processed and total R48m of additional discounts provided for during the
quarter, R21m and R6m respectively related to hotel tenants.
• Hotels that are open are operating at very low occupancies and will continue to do so until international travel
restrictions are lifted.
Marine and industrial
• Industrial tenants performed well in the circumstances, but the demand for charter boat cruises and helicopter
trips remains low.
• Of the total R113m of discounts processed and total R48m of additional discounts provided for during the
quarter, R5m and R8m respectively related to the marine and industrial sector
• The cruise industry is still closed with no indication as to when international cruises will resume, but this is
unlikely to occur in 2020. MSC has confirmed some domestic cruises planned for January 2021.
Funds management
Growthpoint Healthcare Property Holdings (GHPH)
GHPH continues to build a good pipeline of both development and non-development projects. The Cintocare Head & Neck
Hospital is now operational with some of the doctors moving their practices to the hospital and its first patients already
having been admitted. The transfer of the hospital to the fund is expected in February 2021.
All tenants are currently paying rent as per lease arrangements and where deferrals were provided, the fund has started
to collect those too.
The transaction with the IFC for a US$80m equity and convertible debt package is in the final stages of negotiations.
Growthpoint Investec Africa properties (GIAP)
GIAP completed the further acquisition of a minority shareholding in the Wings Office Complex in Lagos, Nigeria, in August
2020 bringing its total assets under management to c.US$659m.
Having deployed all its equity to achieve significant growth, GIAP is now in discussions with potential new investors and is
likely to launch a second fundraising, for new and existing investors, in early 2021.
GIAP’s loan-to-value ratio remains stable, and the business is currently restructuring its entire debt finance portfolio more
efficiently. The management company also aims to introduce a B-BBEE partner in 2021.
GIAP’s NAV per share has increased 6% for its half-year at end-September 2020, and this period should mark its maiden
distribution, payable to shareholders by 31 December 2020. With the current liquidity and currency convertibility issues
in Nigeria, GIAP is considering either making its distribution in shares or adjusting the distribution amount accordingly.
Recent unrest in Nigeria led to the widespread destruction of property, particularly in Lagos. Circle Mall, which represents
some 3% of GIAP’s asset value and NAV, was among the many assets damaged and looted. It is comprehensively insured
and we are assessing the damage, but the mall will be unable to operate until reinstated.
To date, GIAP has provided total rental concessions and deferrals of US$2.8m to support businesses through the COVID-19
crisis, mostly to smaller retail tenants. These provisions are tapering off significantly as footfall and turnover metrics
begin to rebound.
Treasury and capital management
After our refinancing and new funding initiatives pre-June 2020, there have been no major changes in the funding book.
Total nominal debt at the end of September was R42.6bn. The South African debt capital market seems to be settling and
there have been a few public auctions, however the majority of activity is on a privately placed basis. Fund managers
remain selective in their approach, showing an appetite for better-quality credit.
At the end of September and October respectively, cash and unutilised facilities totalled R4.7bn and R5.4bn.
Growthpoint’s credit rating from Moody’s remains at Ba1, with a negative outlook. The national scale rating is Aa1.za.
Moody’s is scheduled to provide an update on South Africa’s sovereign rating on 20 November 2020.
The weighted average term of the liabilities was 3.4 years at the close of the quarter. Growthpoint’s weighted average
interest rate was 8.0% (8.2% FY20). Including cross-currency interest rate swaps (CCIRS) and foreign-denominated loans,
it decreases to 5.7% (5.9% FY20). A total of 82.3% of our interest rate book was hedged for a weighted average term of
3.1 years.
Dividends from our offshore investments are well hedged considering the quantum of dividends we expect to receive is
less than originally anticipated due to the impact of COVID-19.
Conclusion
While the South African context remains extremely tough, the diversified nature of our business and the geographies in
which we operate have been buffers for us. Our Australian and Eastern European investments in particular are performing
better given GOZ has no exposure to retail assets, GWI’s retail exposure is negligible, and both benefit from very strong
tenancies. However C&R, our pure retail investment in the United Kingdom, is dealing with the country’s second hard
lockdown, expected to last for four weeks until 2 December, during which only retailers selling essential goods may open
and we expect the UK retail environment to remain extremely challenging in the short term.
We remain focused on balance sheet strength in this environment and, as previously signalled to the market, we are
considering all the alternatives available to us.
Growthpoint will release its HY21 results on Wednesday, 10 March 2021, and, given the fluidity of the operating
environment, we have elected not to provide market guidance for distributable income or dividends.
Johannesburg
11 November 2020
Sponsor
Investec Bank Limited
Date: 11-11-2020 05:12:00
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