Growthpoint Properties (GRT) Q3 2024 TU earnings summary

Outlook and guidance

• Upward pressure on funding costs is expected in FY 2025, especially from cross-currency interest rate swap refinancing, with some swaps rolling off at low rates and being replaced at higher rates, notably ZAR 3.5 billion in CCIRS moving from ~1% to ~4% cost.

• Interest rates in South Africa are anticipated to decrease by up to 125 basis points over the next 12-18 months, which could benefit unhedged debt, but timing is crucial for impact.

• Australian interest rates remain elevated, with potential for further increases, while European rates are starting to decline; funding cost pressure persists across jurisdictions.

• Reaffirmed guidance of a 10% to 12% decline in Distributable Income per share (DIPS) for FY24 due to high interest rates.

• No plans to increase payout ratio in the short term due to significant CapEx requirements and current LTV levels; focus remains on matching CapEx with retained earnings and disposals.

Segment performance

• Office market shows improvement in coastal regions (Cape Town, Umhlanga) with near-full occupancy and improving reversions, while Gauteng (Sandton) remains competitive with high vacancies and negative reversions.

• Retail vacancies improved from 6.3% at FY23 to 4.8% at March 2024; renewal success rate at 89.0%; rental reversions improved to -2.9%.

• Office vacancies reduced from 19.2% at FY23 to 15.6%; rent reversions improved to -14.7%; renewal success rate at 56.6%.

• Australian (GOZ) industrial portfolio remains well-let with low vacancies (~3%) and strong rental growth (15%-20%), but office valuations dropped 6.8% due to higher rates and cap rates.

• V&A Waterfront continues to deliver strong growth in net income and footfall, with EBIT up 11%, retail sales up 17%, visitor numbers up 11%, and negligible vacancies at 0.14%.

Key financial ratios and metrics

• GOZ LTV at ~40%, within board comfort range (35%-45%) and well below covenant (60%).

• Group consolidated LTV expected to rise but remains stable due to SA and Eastern Europe valuations; most increase driven by offshore investments.

• Interest cover ratios have deteriorated but are not expected to breach covenants; scenario analysis shows sufficient headroom.

• 79.5% of interest on debt hedged for a weighted average term of 2.1 years; weighted average interest rate at 9.6%.

• Lease renewal rate decreased to 75.0% at March 2024 from 79.0% at HY24.