Due to the Covid-19 pandemic and macro-economic environment in South Africa, FY21 was a difficult period that created the most arduous operating environment that Growthpoint has ever faced. However, the company performed well and confirmed its sustainability even in these highly challenging circumstances.

The quality of certain parts of our South African portfolio has been highlighted by the pandemic, but the tough trading environment created by Covid-19 is nevertheless reflected in all key metrics for FY21: vacancies, arrears, trading densities, rental reversions and the number of business rescues in our tenant base. We have had to work hard to retain tenants – and not just by enticing them to stay, but also by helping to keep them in business.

Our business has been resilient operationally. The tenacity of our team is incredible. It has been goal-driven and laser-focused on doing the best for our clients and our business, throughout the pandemic.

From a general perspective, our in-office safety and staff rotation procedures worked well in keeping our staff safe during the pandemic, and we therefore did not experience any disruptions to our business operations.

In terms of staff health, a number of employees contracted Covid-19, and we supported them well. Sadly, one of our colleagues passed away during the year, and we extend our heartfelt condolences to his family, colleagues and friends.

As a company, we stepped up to the plate where Covid-19 relief was required, and our staff has worked extremely hard to assist tenants where we can, especially those in the restaurant and tourism industries. The negative impacts on income streams have put our top line under considerable pressure.

Our retail assets have experienced weaker trade, and the complexity of the various lockdowns have placed added pressure on rental levels. There was a noticeable improvement in this sector from January to April, after the country emerged from its second hard lockdown, but the rapid rise in Covid-19 cases and the re-imposition of lockdown at alert level 2 from 31 May, then adjusted alert level 3 from 16 June and adjusted alert level 4 from 28 June set us back again.

While the office portfolio was impacted by the pandemicinduced increase in work-from-home, the most significant influence on this sector in FY21 was the earlier contraction of the South African economy. Gauteng's economic activity tapered off by 17.5% in 2020, for example, and despite our best efforts to buck this trend, office vacancies and rentals contracted in tandem. It is in this region that our office portfolio faces the biggest threat. Our office exposure in Sandton, which previously served us well, has been hard hit. The decrease in Gauteng's economic activity has left this market significantly oversupplied, and this has put pressure on rentals and escalated the cost of retention and incentives. The Western Cape and KwaZulu-Natal (KZN) did not experience nearly the same levels of decline, although the unrest after year end in KZN may well impact business confidence in the province.

Our response to contextual challenges has been multifaceted. It includes considering alternative uses for some office buildings, disposing of others, and improving our ability to retain existing clients and attract new clients to our portfolio. We made good strides in all these areas, and this will serve us well now and in the longer term.

Assets in our industrial portfolio have been the most resilient, although the impact of business rescues and liquidations, specifically in the construction, tourism, eventing and steel industries can be seen most clearly in this portfolio. As there is still demand for quality new logistics properties, our development team has been busy on projects in this sector. When embarking on these developments, we are careful to ensure that our clients are not only creditworthy but also understand their own requirements.

Our development team continued to complete projects successfully and generate profits for the business in FY21, notwithstanding the complex environment. It also won several awards for exceptional projects during the year. We remain nimble in seeking and identifying opportunities to deploy our trading and development skillsets in order to generate profits. To some extent, these skills also support our disposal strategy by recognising the best value for our non-strategic assets. Here, we are not limited to the three traditional commercial property sectors of our core business but are able to respond to diverse demand and opportunities, including those in healthcare and residential property. In line with this, we completed the development of the specialist surgical Cintocare Hospital in FY21 and commenced the development of a sectional title residential development, the Kent La Lucia with in excess of 75% pre-sales.

Development work in our office and retail portfolios has focused on reconfigurations, tenant installations, and the steady implementation of our green agenda. In keeping with our environmental sustainability drive, we approved several solar power projects and expanded existing PV installations in line with the new electricity generation regulations.

We also forged ahead with our strategic initiatives, including the optimisation of our RSA portfolio. Growthpoint continues to analyse its portfolio carefully and focus on investing in strong industries, regions and communities. Our balance sheet is in an excellent position to support this because we pre-emptively raised sufficient capital to bolster our business's strength and resilience.

During the year we sold R560m worth of assets that did not align with our strategic objectives and held R181m for sale at year end.

We remain open to opportunities and acquisitions, and especially value those that will ensure sustainable income, which is not easily achieved in this uncertain and challenging market.

The V&A Waterfront's contribution to Growthpoint has more than halved as a result of the pandemic's substantial and prolonged disruption. This is concerning, but we still believe the asset is a good investment. During FY21 we worked on the strategic objectives set out by the V&A and they completed the developments that were already underway.

We have made good progress in establishing our funds management business, and we are now building it with greater confidence. Growthpoint is also in the process of launching and raising capital for a purpose-built student accommodation unlisted REIT. This new fund will give institutions and other investors access to an auspicious real estate space that has previously been inaccessible to them. The response has been good and we are confident we will raise the target amount.

The Africa fund, Lango, has grown enormously and performed well. The healthcare fund, GHPH, delivered a good performance of double-digit growth – in stark contrast to the rest of the property industry. Attracting International Finance Corporation funding is a tremendous vote of confidence for the healthcare fund and an endorsement of its excellent ESG credentials for other development finance institutions. We have many opportunities to grow the fund to the extent that we can raise capital.

We scaled back on our collaborative workspace initiatives with Workshop 17 by disposing of our shares in the venture. In the future, Workshop 17 will only operate specific sites on a management contract basis. However, our initiative with the concierge shopping and delivery service OneCart has grown phenomenally, given the pandemic environment. The company is currently under offer from Massmart Limited, and should all conditions be met, we will dispose of our shares at a profit. We will continue to explore other initiatives and innovations that support the growth and performance of the business.

Growthpoint has played a pivotal role in helping the property sector to navigate and find solutions to the challenges created by Covid-19 by collaborating with key stakeholders since the onset of the pandemic. This co-operation has taken place with the permission of the Competition Commission and in addition to building strong relationships in the industry, it has enabled a cohesive response to large tenants and helped them and landlords to avoid time-consuming and expensive litigation. It has also created a benchmark for efficient and productive negotiations with smaller tenants that were the hardest-hit by the lockdowns, including restaurants, cinemas, and gyms, and helped us to preserve relationships with them.

This collaboration continued to assist us operationally when the country returned to stricter lockdown levels in December and January and is still serving us well as the third wave's most serious lockdowns extend into the next financial year. We continue to communicate well with our tenants, and to build valuable relationships with and improved access to the leadership of many retail groups and more prominent clients. Together with our tenants, we are navigating this tricky environment positively and efficiently.

We are pleased that SAPOA has initiated an economic impact study of inflated municipal rates increases and poor service delivery to the property sector. The results will provide a platform on which we can work with the government to reduce the disproportionate financial strain on the sector and the lack of support in basic service delivery. This year we completed a R56m public roads infrastructure investment programme in Woodmead to improve the M1 Highway Woodmead interchange and the nearby Woodmead Drive and Woodlands Drive intersection. This project was vital to ensure that our assets in the area remain accessible to clients, and it is an excellent example of our commitment to ensuring that their requirements are met. The Gauteng provincial government, which is actually responsible for these roads, simply had no funds for the project.

Transformation is a crucial consideration for Growthpoint and we continue to drive transformation towards our key B-BBEE targets. Processes are embedded in the DNA of the organisation, meaning that everyone at Growthpoint is working towards these shared objectives and that we measure our progress.

As a responsible corporate citizen committed to genuine transformation in South Africa, we are now a level 1 contributor which is an incredible achievement for a company the size of Growthpoint. However, maintaining this level may be challenging, given the limitations on conducting training and other activities under Covid-19 restrictions. Furthermore, raising capital to reinforce our balance sheet in FY21 has diluted our BEE shareholding. In other areas, including the composition of our Board and senior management, we are making progress by appointing and promoting more people from designated groups.

While our rating will come under pressure in the short term, given the continuously changing Property Sector Charter rules and the challenges mentioned, we remain committed to transformation.

Growthpoint is committed to improving the quality of education in the country and has therefore funded the training of early childhood centre practitioners for the past five financial years. We have longstanding partnerships providing educational scholarships, bursaries in association with SAPOA and more recently a teacher maths and science development programme. We have a well-developed graduate programme with 12 graduates in the 2021 programme. Our flagship project, Growsmart which has run for several years has released more than 100 online tutorials. Our youth development programme, Growthpoint GEMS, established several interventions to assist with the migration to online learning and establish an ecosystem of support during the Covid-19 pandemic.

ESG considerations have taken on even more significance this year, with Growthpoint now having a Board-approved ESG strategy with set objectives. We have made great progress in some areas but need to catch up in others. It is essential that we improve in this area, from our Board into every part of our business, especially as we are operating in an environment of deteriorating ethics outside the company. We took our first tentative steps in this area two years ago by carrying out an ethics survey, the results of which prompted us to take a more scientific approach to monitoring and measuring ethics for our business. To make sure our response is relevant in a changing context, we also conducted a new survey in August 2021 and are awaiting the results. Our new MRI operating system has meanwhile strengthened governance in the organisation. Delegation of authority, for instance, is institutionalised into the system's processes.

The South African REIT sector is known for its proactivity in embracing and adhering to best practices. Via our association with SA REIT, we are pleased to be part of exploring the development of best-practice recommendations for ESG reporting among REITs.

Social need in South Africa has increased exponentially. We were nimble enough to adjust to the pressures that came with Covid-19 and continued with all our social initiatives in FY21, building on them where appropriate. We are an organisation with a heart.

The positive impacts that our Property Point enterprise development initiative stands to have on the sector have been recognised by other industry players, who have now partnered with the programme.

Lawless vigilante groups that have tried to hijack construction sites have impeded the industry's property development endeavours. Therefore Growthpoint, together with our contractors, has worked on a process where, before development proceeds, we go into communities to find local suppliers and bring them into the project. This has weakened the ability of these vigilante groups to disrupt our developments.

It was disappointing and saddening to see lawlessness being given free rein for days during the KwaZulu-Natal and Gauteng unrest which began on 9 July 2021, shortly after year end. We were left without the support of law enforcement authorities and had to rely on the tireless efforts from our staff, security providers and communities to deter looters and assist clients. Our community involvement has always been high and the strong connection these communities have with our shopping centres became apparent as they intervened to protect them. Their efforts resulted in significantly less damage to our properties. We managed to get all our properties operational within a week of the unrest but several of our tenants have still to re-open their operations. The financial impact of the unrest will be limited as most of the damage and business interruption was covered by relevant insurance.

Future focus

An improvement in the South African economy is key for our strong future performance. The only effective driver for this is an aggressive roll out of vaccines so that the economically active population can resume more normal habits.

Assuming this can happen, there will likely be improvements for Growthpoint in all three of our property sectors, albeit at varying rates. The big question is around the level of improvement that will come from the office sector. While we still believe that offices are crucial for big corporates, we are also aware that we may have to repurpose some of our offices to ensure greater flexibility for post-Covid-19 work habits.

However, we intend to remain conservative in our new development activity, both for our balance sheet and third-party clients.

Our priorities will still be driving stakeholder value, optimising occupancies and retaining tenants. It is also going to be interesting to tackle the challenges of the office sector by better understanding the needs of our clients' businesses and innovating and improving to accommodate these.

The growth of our funds management business promises to be exciting. Further improvement at the V&A is also likely to the extent that tourism improves.

The socio-economic environment in South Africa is worrying, however, we are optimistic that things will keep improving and hopeful that the civil unrest in July was our darkest hour and that we can move forward from it. Realistically though, the road to recovery is not going to be an easy one, especially as many young professionals are choosing to leave South Africa for better opportunities elsewhere. However, these are all factors that are outside of our control. We continue to improve all the touchpoints with clients and communities in the areas that are within our control, and will strategically focus on these factors to continuously improve Growthpoint's position within the capricious South African environment.

Fundamentally, we expect to see improvement in the medium term, but this is dependent on factors in the macro-environment as well as the fact that the real estate sector lags the economy and thus is slower to follow economic upturns.

Corporate marketing and communication

Growthpoint Properties is an established brand, and our leading position in the property industry ensures that we attract and retain clients while also maintaining loyal relationships with our stakeholders.

Our corporate marketing and communications team, which handles events, design, content and digital marketing as well as brand and project management, is responsible for establishing and increasing positive engagement with the Growthpoint brand.

Marketing's objectives are aligned with our overall business strategy. As we continued to operate under the challenging conditions brought on by the pandemic and various levels of a national lockdown, we kept up-to-date in FY21 with the shifts in audience behaviour and preferences regarding their media consumption.

ESG position statement for Growthpoint

With integrity, ethics and our values guiding our governance, we provide space to thrive in environmentally sustainable buildings, while improving the social and material wellbeing of individuals and communities.

Growthpoint UN SDG focus

A CSR objective

A CSR objective

A sustainability strategy of 20:20:20:2

Property Point

CSR, Property Point and GBCSA

Various associations memberships and participation such as SA REIT, SAPOA and NBI

Environmental

All buildings within direct control of the organisation to operate at net zero carbon by 2030 and all buildings by 2050.

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Social

Labour

Endeavour to create a positive work experience for each of our employees while protecting the interests of the organisation and ensuring that it meets its objectives.

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Community

Driving sustainable impact for the communities in which we operate. Our core-focus areas have been supporting education initiatives, entrepreneurship development and staff engagement.

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Governance

To give all stakeholders confidence that Growthpoint is a well-governed and well-conducted business.

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Growthpoint has achieved a B-BBEE level 1 rating. We are currently anticipating changes to the property sector charter and, as a result, will be doing a transformation strategy refresh at that point in time.

* Black refers to African, Coloured and Indian.