Growthpoint’s results were disappointing overall, as per management’s guidance. Growthpoint has continued to invest in its offshore ventures and is selling off SA assets in the process. Due to taking scrip options, GRT has had to rely on using debt to fund developments, acquisitions and distributions. In assessing GWI, GOZ and C&R as investments, we believe C&R is attractive at the current market value, GOZ is on the cusp of adding value but still faces some headwinds, and GWI is still not a good investment at this stage.
GWI sold off a portion of its industrial portfolio post the reporting date. When looking at GRT’s property sales, the majority are in industrial and retail, meaning that its exposure to office has increased. We would argue that the fundamentals behind offices as an asset class have not changed and are still negative. Concerningly, the yields on retail property sold are often higher than the cost of debt, meaning that the sales decrease DIPS going forward. Reversions are negative across the portfolio and operating costs are increasing above inflation, putting pressure on future DIPS.
As we forecast, GRT’s LTV has exceeded 42%, and management’s guidance sees it rising further. Most of the debt increase in SA is due to student accommodation developments. Given the NSFAS funding limits, these developments are unlikely to be immediately earnings-accretive. Debt has been introduced in the V&A structure (not in GRT’s balance sheet), as well as LTV increasing in GOZ and C&R, while GWI’s LTV decreased due to maintaining high cash levels to repay debt. We expect significant increases in finance costs, as the full impact of refinanced CCIRs will be felt from 2H24, as well as R2.4bn in swaps expiring in June 2024. In the medium term, the R5.4bn in swaps expiring in FY25 will also likely push up finance costs, as well as the increased debt in the V&A structure.