In the short term, however, we are concentrating on reinforcing our strong balance sheet to enhance our ability to achieve our strategic objectives.

The R4.3bn equity raised in November 2020, together with the R577m proceeds from the December 2020 Distribution Re-investment Plan (DRIP) and the R865m (after income tax of R149m) cash retained as a result of reducing the distribution payout ratio to 80% have all contributed to bolstering our balance sheet and decreasing our Group SA REIT loan-to-value ratio (LTV) to 40% as at 30 June 2021. Property development activity has also been scaled back in the current environment with capital and development expenditure of R1.0bn in FY21 and asset sales of R559m in FY21, thereby reducing the need for further debt.

Internationalisation
 

Given the weakening macro-economic environment in South Africa, the growth of our offshore business remains a key driver and priority for Growthpoint. We pursue this strategy while preserving our balance sheet strength and ensuring that our LTV ratio remains at an acceptable level. Our internal threshold is 40%, in line with ratings agency Moody’s maximum LTV ratio requirement of 40% to maintain our Aa1.za. domestic rating.

Strategy in action

We remain committed to supporting Growthpoint Properties Australia (GOZ) and expect Australia to remain a key component for internationalisation given our experience in this market.

Skyring Terrace, Newstead, Queensland, Australia
  Asset allocation
  GOZ     C&R     GWI
  Australia     UK     Eastern
Europe
         
Growthpoint’s shareholding 62.2%     52.1%     29.3%
Cost of investment R9.6bn     R3.0bn     R8.4bn
Market value of investment R20.9bn     R833.3m     R7.6bn
Dividend income earned in FY21 R987m     –     R370m

39.9% of the book value of our assets and 29.1% of EBIT is derived from our international investments. Growthpoint continues to offer investors a defensive property investment, diversified by both geography and sector.

Our international footprint has been growing since 2009 and now spans five countries: South Africa, Australia, Poland, Romania and the UK.

Capital & Regional (C&R), our pure retail investment in the United Kingdom, has been severely impacted by Covid-19 and the extensive lockdown measures in the UK. While the C&R balance sheet is under pressure as a result of extensive asset write downs of its portfolio, the Growthpoint Board is considering a range of options for this investment.

C&R signed extensions of loan covenant waivers on The Mall and Ilford to January 2022 and April 2022 respectively, and agreed terms on an extension to the Luton waiver until January 2022.
Streamlining and optimising our RSA portfolio
 

Growthpoint’s domestic property portfolio has grown through mergers and acquisitions, each adding a different portfolio of individual property assets which meet the acquisition criteria, as well as some that don’t. We currently have several non-core assets for disposal, which either don’t align with our criteria or are inappropriately located to facilitate efficiency and management excellence.

Strategy in action

Disposing of assets has been challenging for the past few years and this situation has been exacerbated by the Covid-19 pandemic, which has led to a further reduction in demand by buyers in the market. We continue to manage assets to optimise their value over the long term, but remain committed to selling non-core assets either by individual sales or in small portfolios, where the appropriate value can be realised.

144 Oxford Road, Rosebank, South Africa

Eight individual assets with a combined value of more than R0.6bn were sold in FY21, or are in various stages of the sales being concluded.

Since FY17 we have sold R7.6bn worth of assets:

Disposals  
FY17 R2.0bn
FY18 R1.5bn
FY19 R2.9bn
FY20 R0.6bn
FY21 R0.6bn
Total FY17 – FY21 R7.6bn
Held for sale at FY21 R0.2bn
Total R7.8bn
New income streams from:
 
  • Funds management
  • Third-party trading and development

Strategy in action

Growth of existing funds and exploration of new funds opportunities.

Diversification by income streams.

Wings Office Complex, Lagos, Nigeria

Funds management

The capital-light nature of this strategic thrust makes it particularly attractive in the current environment where we are focused on the strength of our balance sheet. The intention is to build a R15bn funds management business by 2023. For each fund, our intention is to raise third-party funding of up to 80% and introduce gearing of around 40%. Growthpoint will aim to retain at least 20% of each fund and earn asset management fees. These funds are different from the existing asset types and geographies in Growthpoint’s RSA portfolio.

Our funds management business contributed revenue of R185.6m to Growthpoint in FY21.

Our first two funds, Lango (previously Growthpoint Investec Africa Properties) and Growthpoint Healthcare Property Holdings (GHPH), were launched in 2018. Growthpoint’s Funds Management platform has gained strong momentum over the past year and now has R11.7bn worth of assets under management. It is on track to meet its goal of having R15bn of assets by 2023.

Lango now has assets under management of USD600.9m and a net asset value of USD320.1m. It has built a quality portfolio of nine income-producing assets in prime locations in major gateway cities in Ghana, Zambia and Nigeria. It has attained meaningful scale and relevance to emerge as a leader in the African real estate market. It diversified its investment base from six to 30 shareholders. Further growth and diversification are planned for the fund, which paid its maiden dividend in December 2020 and distributed a total of USD2.9m to its shareholders in FY21 translating into a total distribution of R6.6m for Growthpoint.

GHPH has grown its portfolio to R2.8bn and has six healthcare assets, including five hospitals and one medical chambers, managed by three leading operators. The fund acquired one new hospital, Paardevlei in Somerset West, and has a pipeline of acquisitions and developments to drive its growth. GHPH distributed 86.41 cents a share to its shareholders in FY21 versus 77.45 cents in FY20 translating into a distribution of R132.1m for Growthpoint.

Trading and development

Growthpoint develops assets for its own balance sheet, with this investment capped at 5% of the RSA portfolio value. As an agile partner for our clients, we also leverage our skills to develop assets for third parties and take short-term, active positions in these assets with the intention of trading them. These projects are pre-identified and don’t exceed 3% of the value of the RSA portfolio.

Development activity has been scaled back significantly in the current environment and we did not have any speculative developments in the financial year. In FY21, Growthpoint completed R1bn worth of developments, which added R71m of rental revenue.

In addition, Growthpoint earned R122m from trading profits and development fees.