STRATEGIC THRUSTS

Our three stated strategic thrusts, which are aligned with our vision "to be a leading international property company providing space to thrive", remained our focus in FY20 and we made good progress in the first three quarters of the financial year. The Covid-19 lockdown commencing at the beginning of our fourth quarter compelled us to focus on managing business operations during an uncertain time.

Internationalisation
Offshore growth

With the weakening domestic macro-economic environment, the growth of our offshore business remains a key driver and priority for Growthpoint.

We pursue this strategy while preserving our balance sheet strength and ensuring our LTV ratio remains at an acceptable level. Our internal threshold is 40.0%; Moody’s also requires a maximum LTV ratio of 40.0% to maintain our Aa1.za. domestic rating.

We remain committed to supporting Growthpoint Properties Australia (GOZ), Globalworth Real Estate Investments (GWI) and Capital & Regional (C&R) in their strategies while also looking for other opportunities.

STRATEGY IN ACTION

In December 2019, Growthpoint took advantage of market dislocation in the United Kingdom caused by Brexit and the impact of online retail on this sector and purchased a 51.1% stake in C&R for R2.9bn.

Our Group footprint now spans three continents and five countries: South Africa, Australia, the UK, Poland and Romania.

  GOZ C&R GWI
Asset allocation Australia UK Eastern Europe
Growthpoint's shareholding 62.2% 52.1% 29.4%
Cost of investment R9.6bn R2.9bn R10.3bn
Dividend income earned in FY20 R1 010m R107m R613m

40.8% of the book value of our assets and 28.2% of EBIT comes from our international holdings. Growthpoint continues to offer investors a defensive property investment, diversified by both geography and sector.

Introducing new revenue streams
Sustainable opportunities

Funds management business

The intention is to build a R15bn funds management business by 2023. This is a capital-light strategy, where we raise third-party funding of up to 80.0% in each fund and introduce gearing of around 40.0%. Growthpoint will retain at least 20.0% of each fund and earn asset management fees. These funds do not compete with the existing asset types and geographies in Growthpoint’s RSA portfolio.

Trading and development

Growthpoint develops assets for its own balance sheet, with this investment capped at 5.0% of the RSA portfolio value. As an agile partner for our clients, we leverage our skills to develop assets for third parties and take short-term, active positions in assets with the intention of trading them. These projects are pre-identified and do not exceed 3.0% of the value of the RSA portfolio. We aim to maintain a sustainable pipeline of trading and development opportunities not exceeding 1.0% to 2.0% of distributable income.

STRATEGY IN ACTION

Funds management business

This business contributed revenue of R160.9m to Growthpoint in FY20.

Our first two funds, the Africa and Healthcare funds, were launched in 2018. Growthpoint's funds management platform has gained strong momentum over the past year and now has assets under management of around R13.7bn. It is on track to meet its goal of having around R15bn of assets by 2023.

GIAP now has a combined property portfolio value of USD638m and net asset value of USD301m. From a zero base at the start of the year, it has built a quality portfolio of eight income-producing assets in prime locations in major gateway cities in Ghana, Zambia and Nigeria, secured in three significant transactions. It has attained meaningful scale and relevance to emerge as a leader in the African real estate market. It diversified its investment base from six to 30 shareholders. Further growth and diversification is planned for the fund, which expects to pay its maiden dividend in FY21.

Growthpoint Healthcare Property Holdings (GHPH) has grown its portfolio to R2.6bn with five healthcare assets, comprising four hospitals, managed by three leading operators and one medical chamber building. The fund attracted significant investment from new and existing shareholders. With the pandemic, the opening of the specialist Cintocare Hospital in Pretoria and other transactions were delayed. This and the impacts of Covid-19 on the healthcare sector, resulted in the healthcare fund’s FY20 distribution of 77.45 cents per share, being 5.8% growth on FY19. The healthcare fund has a pipeline of acquisitions and developments to drive its growth.

Trading and development

Growthpoint completed R2.0bn worth of developments.

New developments valued at R2.3bn were completed by Growthpoint for its own portfolio, which added rental revenue of R19.6m. This was lower than anticipated as the Covid-19 lockdown stopped construction and delayed occupancy in some cases. More than half of the value of new developments was for our office portfolio.

In addition, Growthpoint earned R10.6m of fees from trading and development opportunities. This is well within our pre-defined limits. We completed developments valued at R900m in this category and have a pipeline of R2.4bn of developments that have started and which need to be completed.

We expect development projects in FY21 to be limited in light of market conditions and are reviewing all previously approved projects where construction is yet to commence.

Optimising and streamlining our RSA portfolio
Manage assets

Growthpoint’s domestic property portfolio has grown through mergers and acquisitions, each adding a distinct portfolio of individual property assets which collectively meet acquisition criteria, but includes those considered non-core. We currently have several such assets for disposal.

STRATEGY IN ACTION

Disposing of assets has been challenging for the past few years. This has been exacerbated by Covid-19 which has led to a further reduction in liquidity for potential buyers in the market. We continue to manage assets to optimise their value over the long term but remain committed to selling non-core assets, either by individual sales or in small portfolios, where the appropriate value can be realised.

Thirteen individual assets with a combined value of more than R582m were sold during FY20.

In the last four years we have sold over R7bn of property assets, representing 10% of the RSA portfolio value.