Growthpoint profit takes a hit as high rates bite

Property group Growthpoint says its interim profit fell by more than a third in the six months to the end-December as it felt the effect of high interest rates across its local and international businesses.

SA’s largest JSE-listed real estate investment trust (Reit) said the high-interest environment was unlikely to change soon.

Headline earnings per share (HEPS), a common profit measure in SA that excludes certain items, fell 34.2% to 56.59c from the previous matching period, the company said on Wednesday.

This comes as high interest rates negatively affected the distributable income of the group with the total cost of funding increasing by 16.9% to R2.1bn. The lower earnings resulted in the dividend per share decreasing 8.6% to 58.8c.

“Despite unprecedented challenges in our markets, including low domestic growth, volatile global markets caused by interest rates that remain higher for longer and rising geopolitical tension, our results continue to reflect the resilience and diversification of our business and our quality earnings,” CEO Norbert Sasse said.

Total revenue increased 4% to R7.1bn while operating profit was up 0.2% to R4.5bn.

With a portfolio of 528 properties across three major business units, Growthpoint has assets in SA, the rest of Africa, Eastern Europe, Australia and the UK, with an increasing emphasis on the number of assets it holds offshore.

Its SA business, representing 53.7% of total property assets, is diversified across retail, office, industrial, and trading and development.

The group said that performance indicators improved for all three SA sectors, with the V&A Waterfront highlighted as a standout performer recording a 13.7% increase in distributable income for the half year to R380.7m.

“The V&A continued its outstanding performance driven mainly by increased tourism and the positive effect this has on retail, hotels and attractions,” the company said.

However, the group said the office sector was still grappling with oversupply issues in Gauteng. Until a tangible growth trajectory was observed within the SA economy, “businesses are likely to face persisting challenges”.

“We anticipate subdued growth within the retail sector, as retailers are affected by the financial strain faced by the SA consumer, compounded by the challenges of load-shedding,” the group said.

Conversely, it said offices in KwaZulu-Natal and the Western Cape were showing signs of improvement. The industrial portfolio reflected marginally improved trading conditions, though an increase in vacancies offset this.

Growthpoint said the industrial sector, which was benefiting from a more balanced supply-demand dynamic, was expected to demonstrate a better performance compared to its counterparts in the medium term.

As part of its growth strategy, Growthpoint has been expanding its international presence in a bid to reduce exposure to the low-growth SA market. In SA, the firm has been on a path to increase its exposure to the lucrative industrial sector, specifically modern logistics and warehousing properties.

The group reported “good liquidity” with R1bn cash on its SA balance sheet and R6.2bn in SA unutilised committed debt facilities.

Sasse said Growthpoint would remain focused on strategic initiatives meant to preserve liquidity and balance sheet strength in the long term, enabling it to pursue its three key goals: optimising its SA portfolio, international expansion and increasing revenue from Growthpoint Investment Partners’ managed assets.

However, it warned that its international expansion bid would be constrained by the high cost of capital, both domestically and offshore, particularly as the group commits to strengthening its balance sheet.

In the six months, Growthpoint continued investing internationally with 43.5% of property assets by book value located offshore.

The company said this financial year would be a challenging one. “Interest rates, globally and domestically, are expected to be higher for longer, affecting both our domestic operations and offshore investments”.

“The second half of FY24 presents further domestic volatility with the SA national elections on May 29, coupled with ongoing load-shedding and infrastructure deterioration. Global political uncertainty also remains a concern.”

However, the group was confident that its strategies and initiatives would help it manage and mitigate the macro and micro challenges in its markets. and further stabilise its performance’s predictability.

Growthpoint’s share price was unchanged at R11.73 on Wednesday, giving it a market value of R40.2bn.