Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong operational performance across all business units, with key metrics in South Africa showing improvement.
- Successful international investments, particularly in Growthpoint Australia and the V&A Waterfront, which continue to perform well.
- Significant progress in reducing arrears and improving the cost-to-income ratio, nearing pre-COVID levels.
- Innovative initiatives such as the power purchase agreement for renewable energy, enhancing ESG credentials and attracting tenants.
- Continued development and investment in logistics and industrial properties, with strong demand and rental levels.
Negative Points
- Distributable income per share and dividend per share both down by 10%, primarily due to high interest rates.
- Increased finance costs, with a 16% rise in interest expenses impacting overall financial performance.
- Higher loan-to-value ratio, particularly in the Australian business, due to asset value write-downs.
- Negative reversions in the office portfolio, with significant vacancies and challenges in retaining tenants.
- Decline in net asset value per share by 6.1%, driven by asset value write-downs and increased debt levels.
Q & A Highlights
Q: Can you provide more details on the impact of interest rates on your financial performance?
A: (Norbert Sasse, Non-Executive Director) The biggest impact on our financial performance has been the rise in interest rates. We started the year guiding for a 10%-15% decrease in distributable income per share, and we ended up at the better end of that range with a 10% decrease. The interest rate hikes have significantly increased our interest expenses, overshadowing our strong operational performance across all regions.
Q: What are the key strategic initiatives for improving the South African portfolio?
A: (Estienne de Klerk, CEO of South Africa) We are focused on improving the quality of the South African portfolio and optimizing our international investments. This includes selling non-core properties, reinvesting in core assets, and developing new logistics facilities. We also signed a power purchase agreement to acquire renewable energy, which will cover about a third of our total consumption.
Q: How is the performance of the V&A Waterfront?
A: (Norbert Sasse, Non-Executive Director) The V&A Waterfront continues to perform well and remains a standout asset. It contributes 8.3% of our total book value of assets and 16% of our debt. The operational performance is strong, and it remains a unique and valuable asset in our portfolio.
Q: Can you elaborate on the performance of your international investments?
A: (Norbert Sasse, Non-Executive Director) Our international investments include Growthpoint Australia, Capital & Regional, and Globalworth. Growthpoint Australia remains a key asset, although it faced a 10.8% decrease in FFO due to interest rate hikes. Capital & Regional saw a 5.5% increase in dividends, and Globalworth faced a 27% decrease in dividends due to refinancing costs. Overall, our international investments represent 42% of our total book value of assets.
Q: What are the future projections for interest rates and their impact on your financials?
A: (Norbert Sasse, Non-Executive Director) We expect the trajectory of interest rates to be downward, with potential cuts of 25 basis points as early as this month. However, the impact will be more significant in the second half of our financial year. We have legacy hedges at low rates that will need to be re-hedged at higher rates, leading us to guide for lower earnings next year. We are more confident about returning to growth in distributions by FY26.
Q: How are you managing your balance sheet and liquidity?
A: (Norbert Sasse, Non-Executive Director) We remain focused on balance sheet management and ensuring sufficient liquidity. Our group loan-to-value ratio has risen from 40% to 42%, mainly due to asset value write-downs in Australia. We have ZAR6.3 billion in liquidity through revolving credit facilities and ZAR465 million in cash on the balance sheet. We aim to maintain a conservative gearing level, especially for the South African balance sheet.
Q: What are the key financial metrics for the period under review?
A: (Norbert Sasse, Non-Executive Director) Our distributable income per share and dividend per share are both down 10%. Group property assets decreased by 2.8% to ZAR174.7 billion. Our interest cover reduced from 2.9 times to 2.4 times, and the group loan-to-value ratio increased to 42%. Net asset value per share decreased by 6.1% to ZAR2,020.
Q: How is the performance of the South African office portfolio?
A: (Estienne de Klerk, CEO of South Africa) The office portfolio has seen significant improvement, with vacancies reduced from over 22% to around 15%. We are working hard to let the remaining space, and there is potential for upside as we fill these vacancies. However, retaining tenants often comes at the cost of rental levels, leading to negative reversions of just under 15%.
Q: What are the developments in your trading and development business?
A: (Estienne de Klerk, CEO of South Africa) Our trading and development business remains a key part of our strategy, although it can be unpredictable and lumpy. We continue to develop new buildings, refurbish properties, and engage in trading and development deals. This business provides valuable skills and opportunities for Growthpoint.
Q: Can you provide an update on your renewable energy initiatives?
A: (Estienne de Klerk, CEO of South Africa) We have signed a power purchase agreement to acquire 195 gigawatts of renewable energy, which will come online by mid-next year. This will cover about a third of our total consumption. Additionally, we have rolled out solar projects, aiming to reach 50 megawatts of solar power on our properties, primarily in industrial and retail sectors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
