Prudent financial management pays off for Growthpoint, says CFO Francois Schindehütte

Francois explains that a strong balance sheet and liquidity demonstrates the sustainability of Growthpoint.

Growthpoint Properties has delivered 6.2 percent growth in revenue and R5.1 billion in distributable income for its financial year ended 30 June 2021.

Compared to the previous financial year, distributable income decreased by 7.8 percent. On a per share basis, it declined 19.1 percent to 148 cents per share, mainly due to 408 million new shares issued through the oversubscribed equity raise of R4.3 billion in November 2020 and the December 2020 dividend reinvestment programme, which raised an additional R577 million.

The new equity, combined with strategic South African asset sales of R559 million and R864.8 million being retained for the 2021 financial year after income tax, in line with an 80 percent pay-out ratio, added R6.3 billion to Growthpoint’s liquidity. This significantly strengthened the group’s balance sheet.

According to Growthpoint South Africa CFO, Francois Schindehütte, the group performed well despite the unexpected conditions of Covid-19, which demonstrated the benefits of good liquidity, balance sheet strength, and a conservative management approach.

The property group achieved healthy loan-to-value levels despite a 7.4 percent devaluation of its South African portfolio, which has decreased in value by 16.2 percent since Covid-19 first appeared in South Africa. Over the past two financial years, Growthpoint South Africa’s portfolio value has been written down by R12.5 billion as a consequence of poor property fundamentals driven mainly by income uncertainty from the country’s economic challenges.

“Prudent financial management enabled us to continue to pay dividends to our shareholders and meet our contractual obligations to customers, suppliers and debt providers,” Francois says.

The group has given R475 million in discounts and R191 million in rental deferrals since the beginning of Covid-19 in April 2020.

“The impact of the pandemic on our tenants was clear in our revenue,” Francois explains. “Growthpoint’s immediate response to the financial needs of our tenants has ensured their short-term sustainability and will have long-lasting benefits for our own sustainability.”

He adds that the group continued its detailed disclosures and reporting on discounts, deferments, arrears and bad debts, as well as the influence of higher vacancy levels in South Africa on its rental income.

The group’s South African performance improved slightly in 2021, mainly due to fewer Covid-19 discounts and deferrals, as well as the reversal of R85 million bad debts previously provided for.

Growthpoint achieved a 99.7 percent average rental collection rate for its South Africa portfolio, and recovered R173 million of total rental deferrals granted since the onset of the pandemic. It leased more than 1.2 million square metres of space and maintained a renewal success rate of 65.4 percent.

Arrears also decreased from R512 million to R308.2 million over the year, with the bad debt income statement charge reducing to R29.9 million from R236.5 million.

“These achievements and our overall financial performance demonstrate the sustainability of our business,” Francois says.

An exciting new financial year
Francois explains that Growthpoint made big strides in the 2021 financial year with the migration to a new property and financial management system, MRI. “[MRI] helped us to unlock more business intelligence, add more value to our customers and keep us ahead in a competitive market. We have also fully automated our group results consolidation process.”

He adds that the group also remains committed to allocating capital to advance the three strategic priorities:

  1. Internationalisation
  2. Optimising and streamlining its South African portfolio
  3. Introducing new income streams from funds management as well as the trading and development of properties

Francois is excited about Growthpoint launching the third fund in its funds management business in October this year, which will focus on purpose-built student accommodation. The fund will join Growthpoint’s first two funds – Lango Real Estate and Growthpoint Healthcare Property Holdings.

“Growthpoint’s capital light funds management strategy leverages our management strength – including financial management – in the unlisted, co-investment environment,” Francois says. “The co-investment and co-management model are effective and particularly attractive in this market, and we are focusing on growing this business.”

He adds that the group is also cautiously optimistic about the potential for improvement in some of the geographies and sectors where it invests.