Growthpoint reports improved KPIs despite high interest rates

JSE-listed retail estate investment trust (Reit) Growthpoint Properties has reported improvements in the majority of key performance indicators (KPIs), including arrears, rental reversion rates, valuations and vacancies, for its South African business for the financial year ended June 30

The company noted, however, that a strong operational performance has been overshadowed by the negative impact of high interest rates, lower dividends from Globalworth Real Estate Investments (GWI) and reduced profit from the South African trading and development division.

Growthpoint explained that high interest rates continued to negatively impact on distributable income, with total cost of funding having increased by 16.2% year-on-year to R4.39-billion. Distributable income decreased by 10.3% to R4.8-billion.

Growthpoint said high interest rates would continue to impact on the real estate sector and the company’s domestic operations and offshore investments.

During a financial results presentation on September 11, CEO Norbert Sasse noted that, while interest rates were expected to come down, the effect of this was likely to start showing in the business only from the second half of the 2025 financial year.

Nevertheless, he said the ongoing refinancing of interest rate swaps and cross-currency interest rate swaps at significantly higher rates continued to remain a challenge for earnings growth.

“Right across the board, operationally things are actually pretty sound … but the interest factor weighs extremely heavily right across the group,” he said.

Total group revenue for the year increased by 4.8% to R14.4-billion year-on-year, while group operating profit decreased by 2% to R8.7-billion.

Moreover, the company reported a decrease in net asset value per share, based on the South African Reit definition, by 6.1% to 2 020c per share, mainly owing to negative property valuations in Growthpoint Properties Australia Limited (GOZ).

Distributable income per share (DIPS) decreased by 10% to 141.9c, compared with 157.6c for the year ended June 30, 2023, which the company says is within the 10% to 12% guidance range provided for the 2024 financial year.

Additionally, dividend per share decreased by 10% to 117.1c, compared with 130.1c in financial year 2023.

Meanwhile, funds from operations (FFO) per share, based on the South African Reit FFO definition, decreased by 11.5% to 131.5c.

Basic earnings per share decreased by 45.9% to 37.49c, mainly owing to negative fair value adjustments on investment property, interest-bearing borrowings and derivatives.

Basic headline earnings per share decreased by 32.3% to 101.26c.

PROSPECTS
The company noted that its strategic approach would be guided by its priorities, which included safeguarding the strength of its balance sheet and fulfilling its commitments towards environmental, social and governance (ESG) objectives.

To this end, the company said its focus would remain on improving the quality of its South African portfolio, with emphasis placed on capital allocation, proactive tenant retention strategies, strategic repositioning efforts, fostering green building initiatives, leveraging renewable-energy solutions and focusing on higher growth sectors.

Growthpoint says the V&A Waterfront’s performance exceeded expectations for the 2024 financial year, driven by increased domestic and international tourism.

Growthpoint has described the V&A Waterfront as a “standout performer” driven by the positive impact of increased tourism with distributable income increasing by 12.6% to R775-million.

However, redevelopment of the Lux Mall, which began in July, and the Table Bay Hotel, with a closure from February 2025, is expected to have a negative impact on the 2025 financial year performance.

Growthpoint explains that both redevelopments are scheduled to open towards the end of 2025, and that the V&A Waterfront anticipates achieving mid-single-digit growth for the 2025 financial year.

Meanwhile, the company said international expansion was constrained by the company’s high cost of capital, both domestically and offshore, particularly as Growthpoint is committed to balance sheet strength.

Consequently, the company said it would continue to focus on optimising its existing investments.

In terms of ESG objectives, Growthpoint entered into a power purchase agreement for the yearly purchase of 195 GWh of renewable energy, representing 32% of financial year 2023’s yearly electricity consumption, effective from July 2025.

“Our diversified portfolio and income streams position us defensively for financial year 2025. The improvement in our domestic portfolio's property fundamentals and the strong operational fundamentals of our international investments indicate that we may have reached the bottom of the property cycle.

“It is important to recognise that the ongoing impact of high interest rates, both locally and internationally, remains a challenge for DIPS growth in financial year 2025, which is expected to decline by 2% to 5%.

“As we assess interest rate expectations across our investment geographies, it is evident that there are positive indicators supporting our outlook for financial year 2026 when we expect positive DIPS growth to resume,” said Growthpoint.