We have been discussing the results of quite a few companies over the past while as results for the period ending 30 June 2009 continue to be released. This full and half year results are particularly interesting as they have been achieved under generally tough circumstances. If you recall the ALSI peaked in May last year, commodity prices the following month, and inflation soon thereafter. Since then while inflation and more recently interest rates have come down, so has both local and global economic growth rates.
By way of background, Growthpoint is the largest company in the SA listed property index (i.e. listed property companies excluding Liberty International) and is slightly bigger than Redefine. They own a broad range of some 438 properties in the retail, industrial, and office sector.
Some of their larger retail properties are the Brooklyn Mall (Pretoria), La Lucia Mall (Durban), Constantia Village (Cape Town), Walmer Park Shopping Centre (PE), and Beacon Bay in East London. This quality portfolio has allowed Growthpoint to revalue their portfolio upwards by 0.6% to R29.2bn, despite prices generally dropping. While growing in nominal terms their portfolio would have suffered in real terms.
Highlights for Growthpoint over the 12 months in review include:
• Managing to grow their distribution by 7.6% to 114.6c per linked unit.
• Inclusion in the ALSI Top 40.
• Good liquidity as over half the shares traded hands during the year.
• Foreign shareholding increasing to over 6%.
A key area of concern will be the increase in vacancy levels over the last 12 months. At 30 June 2008 vacancies were at 2.9%, and this level has moved up to 5.4% (an increase in 86%). While the 2008 level was at historically low levels, and the 2009 level isn’t too bad, the concern for all listed property companies must be where the level finally ends up. Increased vacancies have a direct impact on the level of distributions that the company is able to declare. If vacancies increase too much we could see a drop in distributions in the future.
While vacancies are rising, Growthpoint has continued to spend on new developments, with over R1.5bn spent in the financial year. They have been developed with decent expected initial yields, but these calculations are premised on them achieving the targeted letting levels which will be under pressure.
A major reason for local listed property companies holding up so well when compared to their offshore counterparts has been the conservative loan to value (LTV) levels that these companies have been trading at. Many offshore REITS had LTV’s upwards of 60%, which increased rapidly as property values came under pressure. Growthpoint managed to decrease their LTV over the 12 months from 34.4% to 32.2%, which is a conservative level.
Local property companies are in much better shape than their offshore counterparts, but when putting our investment hats on we feel that offshore property offers much better value.