Last year, when we commented about how tough our operating environment was, we had no idea how much more difficult it was going to get this year. This has been a very challenging time indeed in both our macro and micro environments.
Business confidence and our KPIs deteriorated throughout the year, with vacancies growing, arrears increasing, lease renewals declining and rentals coming under even more pressure. Even so, with a focus on alternative sources of income, we were on track to meet our market guidance and achieve our stated objectives before the coronavirus pandemic hit South Africa in March 2020.
Proactively, Growthpoint established an internal Covid-19 task team to guide our operational response to the pandemic before the hard lockdown at the end of March. We were thus well prepared for what happened and could respond across all our property sectors. Our plan included enabling employees to work remotely and ensuring our business operations were uninterrupted. At our properties, we adopted new standard operating procedures over and above those required by the national disaster management regulations and to a large extent, these became a benchmark for the industry.
Our response to the lockdown centred on our clients and working with them through this difficult time with understanding and empathy. Communication was pivotal during this period and we intensified our usual proactive contact with clients. We tried to advise and update on progress often, in a concise, plain and transparent fashion, to provide valuable information and reassurance. To enable an agile response, we categorised our tenants into groups based on the severity of the impact on their industries, so we could develop an appropriate strategy for each group. Our operating metrics deteriorated during the hard lockdown in April and May. However, there were early signs of a shift to increasing rental collection rates in June when the economy began to re-open.
We always have to manage tenant relief in the context of our own sustainability. Assisting our clients' businesses during the lockdown helped us to retain tenants but of course also put pressure on our cash flow. This was also affected by our decision to maintain our supply chain by supporting our suppliers financially and keeping their businesses operational.
Growthpoint has about 6 500 unique clients in its South African portfolio and communicating with them this year has been a complex and challenging task. Property management systems and programmes have never before had to deal with the sort of requirements triggered by the lockdown. Managing individual client relationships, agreeing to terms, passing on relief and adjusting rental statements became immediate requirements which could have resulted in chaos but, thanks to creative modelling, we were able to manage this massive process. Staying on top of this took up most of our time for the first six weeks of lockdown. It required an enormous amount of work and our team can really take pride in what they achieved.
Our culture has helped us navigate the Covid-19 crisis and every one of our values has come into play. Our people have been amazing throughout. They have calmly accepted additional workloads and done whatever has been needed to meet the initial and ongoing challenges in their respective areas. They have thought strategically and been proactive in offering solutions to help us be better under pressure. They have also checked in with each other and taken responsibility for each other. Their response has been moving and humbling.
Growthpoint has often been called a "family disguised as a company" and this has never been more true than during the past year. Our people are the heart of our business and it is a priority to ensure that they are well, energised and inspired. We have thus encouraged and supported them to take especially good care of themselves. We have also endeavoured to keep them motivated while we all adjusted to working remotely. Some people had to work flat out to handle an increased workload, while others were unable to work from home because of the nature of their work and were experiencing self-doubt and feeling worthless. Neither of these situations was easy and maintaining a healthy mindset has been crucial. Our executives connected regularly with the team to lift spirits and create touchpoints of inspiration and purpose.
Our small, but highly effective internal legal team mainly focuses on rental contracts and has done a sterling job this year of standardising leases for national retailers and green leases for the office and industrial sectors. With the advent of the lockdown, this team also shifted into an advisory role in response to needs in the challenging lockdown environment, with new legislation coming out daily that we needed to be on top of in order to equip staff and operate legally.
Our property management focus is on our clients. We aim to be good business partners and easy to do business with, so we have concentrated on streamlining our operations and leveraging our skills and size. This year, we continued to find ways to consolidate our efforts and improve our service. We were also working on reducing complexity in our supply chain to achieve savings while still working with SMMEs.
With the advent of Covid-19, however, we had to shift gears and prioritise the basics: managing clients and collecting rent. This abrupt change was both challenging and interesting. It also proved that our processes are both effective and durable, even under extreme pressure. Even at this difficult economic time, in the face of the coronavirus crisis and while adopting a new IT system, they enabled us to meet the challenges.
We were due to go live with our new MRI IT system on 1 April, but shifted this to 1 July 2020, the beginning of our new financial year. We were then also able to convert our planned staff training into an interactive e-training programme. Our IT department became the backbone of our employees' ability to work remotely during the lockdown. Cybersecurity is now an even more significant focus and gearing up for it is a major workstream. Our IT policy and procedures have been adapted to reflect our intensified emphasis on cybersecurity and governance.
We have always valued doing the basics well, which emerged as a strength in light of the pressure on our clients this year. Our clients want good, clean, safe premises, with a supportive landlord behind them, and this is what we offer. We do not doubt that the actions we are taking now will forge better relationships which will define our future.
Our closest relationships are with clients, brokers and service providers. We welcome feedback from these stakeholders and have used it to improve, including reorganising how we deploy our facilities and building managers. Our client expectations are almost exclusively financial now and we are doing what we can to accommodate their needs, support their businesses and retain their tenancies. Brokers couldn't work during the lockdown. However, we stayed in regular contact with these entrepreneurial stakeholders to encourage them and reinforce our commitment to the broking community, which is essential to our business.
We have run various scenarios to get a better understanding of what our business operations could look like in future. At the time of writing this report, however, there were still many unknowns. We are improving our understanding of psychosocial behaviour and what people need to thrive.
We know the majority of our employees and our tenants' staff thrive on social interaction and collaboration and report that they are missing the ability to separate their home and work lives. While some would like to retain an element of remote-working flexibility, 90% of those we have polled have indicated a desire to return to the office and work as they have in the past. It is reassuring that, while it will take time for everyone to return to their offices, workspace is seen as a valuable tool for thriving businesses.
Health and safety have always received a vast amount of attention in our business. Compliance with the Occupational Health and Safety Act (OHSA) is onerous, but by applying our experience and common sense, we often do more than is required by the letter of the law. The lack of water security has an impact on our fire-protection measures and managing this is increasing costs. We can confidently say that health, safety and hygiene will be an even greater focus at our properties and in our business in the year ahead.
Environmental sustainability is an important part of our operations, and our key achievements in the year include earning the first WELL building rating in Africa and the first green certification for an industrial building in Gauteng.
Last year we introduced our 20:20:20:1 strategy and we were confident of our ability to at least make significant progress in achieving the target of 20 net-zero buildings, R20m worth of green lease recoveries, 20MW of solar energy and the commercial implementation of at least one Greenovate Award Innovation. We have increased the application of the Greenovate innovation from one project to two. The goals remain largely the same, although we have to reassess some specific projects in the light of the changed business environment resulting from RSA's ailing economy and the business interruptions caused by the Covid-19 lockdown. We are also working on setting realistic timelines to achieve all our goals.
|20 net-zero buildings||R20m worth of green
|20MW of solar energy||One commercially
|Our green building certification was ongoing and we gained a greater understanding of what this certification entails. We had three net-zero certified buildings at the end of the reporting period||Collections from the Green Addendum have contributed a R26.8m combined saving for Growthpoint and our tenants this year||We were on track to achieve this goal. However, all capital expenditure was placed on hold in the second half of FY20 including solar installations||One solution from a previous year's Greenovate Awards was successfully implemented at the new Exxaro head office, which was completed this year|
|Growthpoint remains committed to enhancing our management of this objective in the coming year. Carbon-zero buildings have become our big drive, but we underestimated the complexity of our ambitious target, especially when balancing it with commercially viable costs||We are reviewing ways to refresh this aspect of the business||8.3MWh of solar potential has been approved and will be installed as soon as the lockdown restrictions are lifted. If we get back to business as usual soon, we are optimistic that our overall target will be achieved in the coming year||Our goal has increased to two projects in FY21 and while this number is still small, the target is ambitious in the context of a very limited number of development projects. Integrating these innovations is however expected to be more achievable in future because a new category for buildability is being introduced to the Greenovate Awards in 2020|
We have come to appreciate that it may be time to review our strategy relating to specific environmental sustainability elements such as carbon. Our processes and approach are effective, but must be reassessed for relevance in our changing operational context so that we can continue to communicate clear and specific objectives to our stakeholders.
We introduced a specialised environmental analytics dashboard, which has improved the accuracy of our sustainability data and is fostering a better understanding of our resource efficiency and how this supports our financial performance. It is important to note that with the application of the dashboard, we have seen more accurate data collection as well as data on indicators previously not recorded. This, together with the methodology change applied in FY19, we have not seen as much of an overall decline in carbon emissions as we had hoped. We are undertaking a review of our risks and opportunities for our environmental and social issues in early FY21. This will be fundamental to informing our revised approach.
While the management of natural resources is important to us, our investors and funders, it is also crucial for our clients because energy and water efficiencies result in savings which can be passed on to them. Due to the financial pressure created by the lockdown, many companies are desperate for an indirect cash injection and our sustainability initiatives could help them. Our progress might be slowed, however, because capital expenditure is required to further our sustainability projects. We will also continue to drive our focus on utility costs, which have become a massive issue for Growthpoint and our clients alike because of municipal inefficiencies.
GHG Emissions for 1 July 2019 – 30 June 2020
|Mobile Fuels (Company Cars)||19||34|
|Stationary Fuels (Generators)||869||412|
|Product Use: Refrigerant gas (Kyoto Protocol)||2 981||321|
|42 708||37 059|
|Purchased Electricity (location based)||42 708||37 059|
Scope 1 and 2 total
|46 577||37 826|
|653 579||734 052|
|Category 1 – Purchased Goods and Services: Water||3 079||3 436|
|Category 1 – Purchased Goods and Services: Paper||43||46|
|Category 4 – Upstream Transportation and Distribution: Courier||10||6|
|Category 5 – Waste Generated in Operations||7 987||10 769|
|Category 6 – Business Travel||742||1 443|
|Category 7 – Employee Commuting||1 033||1 333|
|Category 13 – Downstream Leased Assets: Purchased Electricity||640 685||717 019|
Total Scope 1, 2 and 3
|700 156||771 878|
|Out of scope – non-Kyoto refrigerants (R-22)||1 869||1 358|
Our Procurement division provides value to the business by collaborating with our stakeholders, both internal and external. Our focus is to ensure governance relating to procurement is adhered to through the application of our procurement policy and extensive stakeholder engagement. We look to provide the best value, while reducing risk. Growthpoint also engages directly with manufacturers of supplies to get the benefit that comes with our countrywide spending power. We have contracts in place with clear deliverables stipulated in service level agreements (SLAs) with all vendors. We ensure that our standards and expectations are kept through continuous engagement with our stakeholders.
Our focuses remain on cost efficiencies, request for proposals (RFPs) projects, supplier negotiation and measuring supplier development. Our procurement team is responsible for operational spend, which is critical and therefore the department needs to be involved from the onset of stakeholder projects.
We replaced manual order books with an electronic order system which elevates system controls and risk mitigation. We are proud of having performed well in negotiating appropriate cost increases on our contracts.
To minimise costs, and streamline the products we use at our buildings, we successfully implemented our hygiene contract on a national basis with three major suppliers. Efforts to have green cleaning products used throughout our business are ongoing. Our waste contract for the new financial year is based on detailed input from the sustainability department to align the contract with Growthpoint's waste reduction objectives. We successfully signed electrical maintenance SLAs.
We improved our positive impact on B-BBEE this year and are particularly proud of the strides made by our division in this regard. We contributed by employing a specialist to work closely with our various divisions to boost understanding and the processes relating to B-BBEE. A deep dive into our supplier list helped clean-up efforts to enhance our scorecard with extensive supplier engagement to encourage their active contribution to B-BBEE. We applied ourselves to working with suppliers to ensure they met Growthpoint's vendor requirements. We addressed the critical issue of fronting and communicated extensively, internally and externally, that the consequence for any supplier found guilty of fronting would be contract termination.
The division played an integral role in the Property and Financial Management (MRI) system, particularly accounts payable, and extensive work ensured that the Electronic order and approval (Fraxion) system was integrated with the new MRI system.
Growthpoint's agile and proactive management of Covid-19, ensuring that staff and our facilities had the necessary equipment and products for uninterrupted operation over the various levels of the lockdown, was nothing short of admirable and our division excelled in meeting the challenges. The high quantities of goods ordered provided some leverage to negotiate prices on resources that were, at times, difficult to source.
Despite the challenges brought on by the pandemic, Growthpoint honoured all fixed contracts, irrespective of work undertaken. We changed our payment system from fortnightly to monthly, which had an impact on cash flows for both Growthpoint and our suppliers. With staff working remotely, the Fraxion system added to efficiencies, and its value was apparent.
The market days, initiated last year, were put on hold as a result of the pandemic. The initiative is a platform for manufacturers, businesses and suppliers to showcase their products and services to each other and Growthpoint. This is an area we would like to revitalise when it is safe to do so. In the interim, we have increased our engagement with our vendors via electronic and telephone contact. Personalised engagement, rather than blanket communication, was appreciated by our vendors and led to stronger relationships with our suppliers, and improved communication beyond contract negotiations, fostering a greater collective purpose.
Going forward, we remain focused on regulatory compliance and working on the MRI system. Cost management is imperative, with only a few large service contracts expected to open up to RFPs. We remain cognisant of the impact of Covid-19 on our supply chain and will keep up our collaboration on issues arising in this regard.
Information Technology (IT)
Our IT service supports the South African sectors of the business across all geographic regions by providing information technology services and support.
Our IT governance was reinforced during the year with monthly IT User Forum and quarterly IT Steering Committee meetings. In addition, other forums created specifically to manage and monitor the roll-out of our new core business systems met at regular intervals. The Programme Management Committee was formed to report into the IT User Forum monthly about any operational issues stemming from the new core business systems and the Programme Board established to report into the IT Steering Committee quarterly on specific project risks during the roll-out of the new systems.
We developed and implemented further IT policies within the governance and management of the IT (COBIT) good practice framework.
We continued to enhance the new property management procure-to-pay solution, Fraxion Spend Management, resulting in improved management and authorisation of expenditure and cost control.
We used Microsoft Office 365 and Microsoft Enterprise Mobility Suite to give Growthpoint staff the flexibility to work remotely from any location with the appropriate security during the Covid-19 pandemic.
We continued with cybersecurity awareness training programme that enables staff to become more familiar with cybercrime and what they can do to protect both Growthpoint and themselves from it.
Our legal team supports the South African sectors of the business across all geographic regions, as well as the service divisions, by providing legal services and support.
Due to the Covid-19 lockdown, we advised the business on the legal position relating to force majeure concerning our leases and other agreements, including development agreements. We took an active role in negotiations with tenants to ensure consistency in the treatment of tenants' claims for relief from rent because of the impact of the lockdown on businesses across sectors and regions. We participated in the Competition Commission's discussion regarding the Grocery Retail Market Enquiry, which was finalised in November 2019. Further, together with SAPOA and SA REIT, we contributed to an agreed code of conduct which the Competition Commission is insisting must be concluded by retail landlords.
This year's transition to the electronic signature of lease documents – and any other relevant agreements – is our first step towards the implementation of an electronic document management system. It enabled us to continue to legally conclude binding leases and other contracts during all levels of the lockdown.
Amendments to the Deeds Registries Act, as regards obtaining certified copies of lost title deeds, led to us undertaking a complete audit of our safekeeping registry. We have ensured that we have all original title deeds in our possession, save for those bonded to various financial institutions, by obtaining three replacement deeds, which has avoided a long and expensive process.
Growthpoint adhere to all legislation and has not received any fines relating to any infringement of legislation.
Our Facilities Management division is responsible for fostering a culture of collaboration which enhances the performance of our assets. It does this by delivering maintenance solutions, value-added client experiences and quality facilities for the whole lifecycle of each asset, guided by best practice and legislation. By tracking and managing the capital and operational budgets, the facilities management team continued to keep the physical assets safe and functional within the prescribed budgets. It also focused on driving down costs without compromising service levels.
Growthpoint compiled a standard operations procedure (SOP) in response to the coronavirus pandemic, which spells out the required protocols for staff members, tenants, contractors and all visitors to Growthpoint sites.
New technology continues to change the built environment. Many positive strides were made by our team over the past year, aligned with the company's goals. They drive a professional client and customer service culture throughout the business and extract maximum value from our assets through optimum pricing models. This is achieved by ensuring the appropriate technical organisations and professionals are appointed to improve customer service and asset performance.
Growthpoint undertook and completed a successful project to future-proof our buildings against any further water shortages in South Africa by installing additional storage tanks, introducing water-saving initiatives and providing buildings with treated water to potable standards for non-potable use and sanitary flushing purposes. To secure water stability, Growthpoint has undertaken a water user licence application (WULA) process to register and license all boreholes in the portfolio.
Due to disruptions in electrical supply, specifically load shedding, Growthpoint has established an integrated process to support and ensure the continuity of power to our clients by securing bulk diesel storage facilities and the introduction of a dedicated diesel replenishment team.
Good progress was made by our contract administration team and all reports are now managed electronically. We introduced an electronic KPI management module for effective and consistent supply chain management across the portfolio to improve overall service delivery. Our lift intercom systems and smart metering systems are now remotely monitored through the national call centre to improve overall operational effectiveness for our clients.
We undertook multiple roofing replacement projects, many in support of PV panel installations. For the inland portfolio, a dedicated diesel replenishment team was established to support its large number of generators and a dedicated team carried out infra-red electrical compliance inspections and reports. There was a continuous drive to ensure Automatic Sprinkler Insurance Bureau (ASIB) compliance throughout the Growthpoint portfolio.
Articulating our strong emphasis on safety and compliance, we initiated several measures to improve our Risk Information Management System (RIMS) and raised awareness about safety among Growthpoint employees and service providers.
Growthpoint's health and safety activities are based on identified risks, as well as legal requirements, which cover risks linked to the physical work environment. These issues are handled by the Health and Safety Committee, as well as our team, and are addressed on an ongoing basis. Besides the minimum requirements, Growthpoint has a clear vision to achieve a zero rate of workplace-related accidents.