Growthpoint performed as well as could have been expected in turbulent times. The South African business performed in line with budget and our offshore investments bolstered our performance. Diversification by both geography and sector stood Growthpoint in good stead.

The early impact of the Covid-19 pandemic emphasised the need to maximise liquidity. The capital we raised in November 2020 significantly increased liquidity and enhanced balance sheet strength.

We received criticism at the time about the significant discount to the net asset value at which the capital raise was priced. However, a greater understanding of the property industry’s challenges crystalised an acceptance that it was the right thing to do. It was a prudent move in line with the conservatism with which we manage our business and Growthpoint now finds itself in a financially sound position that enables positive business decisions in line with our strategic initiatives. It allows Growthpoint to support its investments and pursue opportunities as and when they arise.

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For management, tenant attraction and retention have become even more critical than in the past and increased attention is being given to customers’ experiences.

The economic environment in which the property industry operates has changed over the last few years and necessitates a re-evaluation of the REIT model as we have traditionally known it. Covid-19 has, in addition, challenged Growthpoint to think differently about its business. Capital allocation, our strategic focus, and our international investment model are the important aspects at the centre of our deliberations. Growthpoint is fortunate to be able to reset from a position of financial strength and with a sound business at its core, notwithstanding the operational challenges we face. In the medium term, our growth focus is international and in respect of the South African business, asset management is paramount to ensure an optimal portfolio composition.

In FY21, the prevalence of Covid-19 required a sustained operational focus and Growthpoint with its capable staff handled the operational challenges commendably. We kept our staff safe and our businesses operating, endeavoured to provide the best possible experience to our clients and found ways to support the South African economy through the rental discounts and deferrals we gave our tenants. We also played a leading role in the industry initiatives around the Covid-19 pandemic. Special recognition and words of gratitude are due to our staff who performed admirably during this challenging period. To those who suffered bereavement, we express our heartfelt condolences. To those still recovering from the effects of the virus, we wish a speedy and complete recovery.

During the July 2021 riots, Growthpoint was able to minimise damage and protect its assets. Recognition must be given to the staff who worked so diligently throughout the riots to help to protect our assets and the assets of our tenants. Through the hard work of our staff, our tenants have almost all been able to recommence trading.

The South African operating environment remains challenging. The challenges are most aptly illustrated by the V&A Waterfront, where the FY21 contribution to Growthpoint’s revenue was down 39.8% on FY20. In addition, our Sandton-centric office portfolio is seeing vacancies increase amid chronic oversupply and continued economic uncertainty.

For management, tenant attraction and retention has become even more critical than in the past and increased attention is being given to customers’ experiences. Greater tenant engagement is taking place at all levels to ensure that we remain close to our tenants. However, deteriorating public sector service delivery and political uncertainty continue to make things difficult at all levels of South African society and lead to concerns among our tenants about the sustainability of their rental commitments. These concerns are exacerbated by considerable increases in administered costs, which affect our top line and the bottom line of our tenants. Particularly concerning for the property sector and ourselves are the excessive increases in municipal rates and taxes over the past few years, combined with the deterioration of municipal service delivery. The impact of these increases has reached the stage where it poses a threat to the future profitability of our South African business.

As a leading employer, Growthpoint continues to face the challenge of skills retention and has seen increased levels of resignations from staff. Some staff are leaving the property industry entirely, and several skilled employees are emigrating. Skills are in short supply in South Africa and even more lacking in our industry. The skills of our employees are transferrable from the property sector, which has undoubtedly lost some of its attraction to other, better-perceived industries that are considered safer and more successful.

We continue to work with our industry associations to address these and other concerns, share crucial messages and play a positive role in difficult conversations. However, in the final analysis, what is required is a reset of the political and business environment. The government will have to become more responsive to business needs, including the need for a stable, business-friendly environment.

Notwithstanding our concerns, Growthpoint is a South African business with an extensive portfolio of real estate investments in South Africa. We started here, and we are staying here. However, in the context of the challenges we face, we are seeking ways to future-proof our South African business. This entails more aggressive asset management and a keener focus on sustainability and the elements that make up sustainability and governance. Linked to this, we are enhancing our ability to self-help.

Building a more capital-light business in South Africa has become a primary focus. In the light of this, more activity can be expected in our funds management business, which is already making positive social contributions by investing in asset classes such as healthcare and, in the case of our newest fund scheduled to launch in FY22, student residential accommodation. Growthpoint’s internationally controlled businesses also recognise the appeal of capital-light strategies and further possibilities are actively being explored in Australia.

Over the past two years, we have been reconstituting our Board as long-serving Directors retire. The emphasis throughout the process has been on enhancing the board’s skill set and we hope to complete this in the next year. The board appointment process is structured and specific. In the first instance, we consider candidates who can fulfil the holistic role of a Director and perform particular functions on the Board’s sub-committees. We focus on strong, relevant pre-identified skills and expect our Directors to contribute to Board discussions with insight and understanding of the underlying businesses and their imperatives. I take this opportunity to welcome our new Chairman, Rhidwaan Gasant, who is active in this process and has worked closely with me on all Board-related matters for the past year.

Environmental, social and governance (ESG) responsibilities are essential considerations. Growthpoint has always been known for its good governance, as well as industry leadership in the field of sustainability. However, investor attention is driving a renewed focus on our ESG practices. As a result, we took an even deeper look in FY21 at what we do in these areas, and how we measure ESG and report on it.

As alluded to earlier, we are having a critical look at our business model. Part of this is a reduction in the pay-out ratio and the basis of income recognition – seeking a more sustainable model. We are aware that this change has proven difficult for some longstanding, loyal investors who initially invested in Growthpoint because of our predictable distribution policy and have become reliant on their listed-property income. These stakeholders have been affected by the decrease in the pay-out ratio and without compromising long-term sustainability, we keep them in mind during our deliberations. We are committed to retaining our REIT status and intend to continue to pay dividends twice a year, of at least 75% of distributable income.

Appreciation

As I will be retiring at the upcoming annual general meeting, I would like to take this opportunity to extend my thanks to the Directors of Growthpoint, past and present. They have given their time, knowledge and commitment during my tenure on the Growthpoint Board. In addition, I use this opportunity to recognise the role of my predecessor, Sam Hackner, who sadly passed away earlier this year. Sam was my counterpart in negotiating the internalisation of the management of Growthpoint, a process which brought into being Growthpoint as we know it. In addition, Sam steered Growthpoint through the complex internalisation process. Our thoughts and best wishes are with Sam’s family.

I am also grateful for the wisdom and generosity of the people and partners who have contributed to Growthpoint’s tremendous success and growth during my tenure on the Board. In addition, the support of our investors, funders and many stakeholders has been valued and appreciated.

My gratitude also goes to the Growthpoint Executives for ably executing the agreed strategies with dedication and passion and embracing the goals and challenges set for them.

Growthpoint is a property company, but our business is about the people who build and manage buildings and those that occupy the buildings. It has been a pleasure to serve the Growthpoint family, direct and extended.

Over the past 20 years, Growthpoint has built a world-class sustainable and conservatively managed business that successfully competes in the jurisdictions in which it does business. In doing so, Growthpoint has always acted:

• Deliberately and analytically
• According to the conservative financial metrics that underpin its business, avoiding dilutive transactions, barring exceptional circumstances that dictated otherwise, and not entering into a transaction that puts its balance sheet under unnecessary pressure or at risk
• In a nimble enough manner to take advantage of the unexpected opportunities that so characterise the property industry.

I would encourage Growthpoint to face the future with the same blend of rigour and entrepreneurial flair that has stood it in such good stead over the past 20 years. Now is the time to protect the scarce skills that have helped build the business and do everything commercially reasonable to retain our human capital. It is also the time to seek growth opportunities that enhance the Growthpoint value proposition for all our stakeholders.

Francois Marais
Chairman