STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 31 December 2020

STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2020

STATEMENT OF CHANGES IN EQUITY CONTINUED...

STATEMENT OF CASH FLOWS

For the six months ended 31 December 2020

SEGMENTAL ANALYSIS

For the six months ended 31 December 2020

The Group determines and presents operating segments based on the information that is provided internally to the Executive Management Committee (EXCO), the Group’s operating decision-making forum. The Group is comprised of nine segments, namely Retail, Office, Industrial, Healthcare, Trading and Development, Growthpoint Australia, V&A Waterfront, Central and Eastern Europe and the United Kingdom. All operating segment’s operating results are reviewed regularly by EXCO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Geographic segments

In addition to the main reportable segments, the Group also includes a geographical analysis of net property income, excluding straight-line lease income adjustment and investment property.

The following geographic segments have been identified:

• South Africa
• Australia
• V&A Waterfront
• Central and Eastern Europe
• United Kingdom.

SEGMENTAL ANALYSIS CONTINUED...

SEGMENTAL ANALYSIS CONTINUED...

SEGMENTAL ANALYSIS CONTINUED...

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SEGMENTAL ANALYSIS CONTINUED...

NOTES

For the six months ended 31 December 2021

Note 1: Basic and headline earnings per share

Summary of earnings per share (EPS), headline earnings per share (HEPS) and distributable income per share (DIPS)

	Earnings attributable				Weighted average number of shares
	Unaudited six months 31 December 2020 Rm		Unaudited six months 31 December 2019 Rm	Audited 12 months 30 June 2020 Rm	Unaudited six months 31 December 2020		Unaudited six months 31 December 2019	Audited 12 months 30 June 2020
Total operations
EPS         ♦      Basic	(1 307)		3 372	(6 865)	3 093 862 601		2 975 674 946	2 985 603 538
EPS         ♦      Diluted	(1 307)		3 372	(6 865)	3 107 909 799		2 980 703 584	2 996 415 033
HEPS      ♦      Basic	2 284		2 091	2 386	3 093 862 601		2 975 674 946	2 985 603 538
HEPS      ♦      Diluted	2 284		2 091	2 386	3 107 909 799		2 980 703 584	2 996 415 033

	Cents per share
	Unaudited six months 31 December 2020		Unaudited six months 31 December 2019	Audited 12 months 30 June 2020
Total operations
EPS         ♦      Basic	(42.24)		113.32	(229.94)
EPS         ♦      Diluted	(42.05)		113.13	(229.11)
HEPS      ♦      Basic	73.84		70.27	79.93
HEPS      ♦      Diluted	73.50		70.15	79.64

	Earnings attributable				Actual number of shares
	Unaudited six months 31 December 2020 Rm		Unaudited six months 31 December 2019 Rm	Audited 12 months 30 June 2020 Rm	Unaudited six months 31 December 2020		Unaudited six months 31 December 2019	Audited 12 months 30 June 2020
DIPS	2 495		3 183	5 478	3 398 244 371		3 003 144 664	2 989 240 606

	Cents per share
	Unaudited six months 31 December 2020		Unaudited six months 31 December 2019	Audited 12 months 30 June 2020
DIPS	73.1		106.0	183.1

Reconciliation between basic earnings, diluted earnings and headline earnings

		Gross				Total
		Unaudited six months 31 December 2020 Rm		Unaudited six months 31 December 2019 Rm	Audited 12 months 30 June 2020 Rm	Unaudited six months 31 December 2020 Rm		Unaudited six months 31 December 2019 Rm	Audited 12 months 30 June 2020 Rm
Profit for the year						(1 307)		3 372	(6 865)
Impairment of goodwill		(3 659)*		1 619*	(11 093)*	–		–	1 202
Bargain purchase		(3 659)*		1 619*	(11 093)*	–		(578)	(578)
Fair value adjustments on investment property		(3 659)*		1 619*	(11 093)*	3 591		(703)	8 627
	Net investment property valuation					3 385		(703)	8 723
	Fair value adjustments: equity-accounted investments					685		(524)	808
	NCI portion of fair value adjustments					(479)		524	(904)
Headline basic and diluted earnings						2 284		2 091	2 386

*	The impairment of goodwill, bargain purchase and fair value adjustment on investment property are included in the “fair value adjustment, capital items and other charges” line item on the face of the statement of profit or loss and other comprehensive income, which total R3 659m.

Reconciliation of weighted average number of shares

	Weighted number of shares
	Unaudited six months 31 December 2020		Unaudited six months 31 December 2019	Audited 12 months 30 June 2020
Weighted average number of shares	3 093 862 601		2 975 674 946	2 985 603 538
Number of shares as at 1 July	3 022 496 382		2 970 981 288	2 970 981 288
Shares issued during the year	104 160 872		24 782 937	38 143 690
Effect of treasury shares held	(32 794 653)		(20 089 279)	(23 521 440)
Effect of share options in issue	14 047 198		5 028 638	10 811 495
Diluted average number of shares	3 107 909 799		2 980 703 584	2 996 415 033

Note 2: Fair value disclosure

Classification of financial assets and liabilities

	Fair value through profit or loss Rm	Financial assets at amortised cost Rm	Outside scope of IFRS 9 Rm	Total Rm
Assets
Unaudited at 31 December 2020
Cash and cash equivalents	–	3 158	–	3 158
Trade and other receivables	–	1 210	237	1 447
Derivative assets	493	–	–	493
Listed investments	1 021	–	–	1 021
Unlisted investments	825	–	–	825
Long-term loans granted	2 624	–	–	2 624
Unaudited at 31 December 2019
Cash and cash equivalents	–	2 371	–	2 371
Trade and other receivables	–	1 216	119	1 335
Derivative assets	1 001	–	–	1 001
Listed investments	848	–	–	848
Unlisted investments	69	–	–	69
Long-term loans granted	2 426	–	–	2 426
Audited at 30 June 2020
Cash and cash equivalents	–	2 420	–	2 420
Trade and other receivables	–	1 716	346	2 062
Derivative assets	1 607	–	–	1 607
Listed investments	837	–	–	837
Unlisted investments	922	–	–	922
Long-term loans granted	2 338	–	–	2 338

	Fair value through profit or loss Rm	Financial liabilities at amortised cost Rm	Outside scope of IFRS 9 Rm	Total Rm
Liabilities
Unaudited at 31 December 2020
Trade payables	–	2 347	362	2 709
Derivative liabilities	3 764	–	–	3 764
Tax payable	–	–	266	266
Interest-bearing borrowings	63 256	–	–	63 256
Lease liability	–	2 160	–	2 160
Unaudited at 31 December 2019
Trade payables	–	2 721	268	2 989
Derivative liabilities	766	–	–	766
Tax payable	–	–	69	69
Interest-bearing borrowings	64 015	–	–	64 015
Lease liability	–	2 535	–	2 535
Audited at 30 June 2020
Trade payables	–	2 601	398	2 999
Derivative liabilities	4 762	–	–	4 762
Tax payable	–	–	101	101
Interest-bearing borrowings	70 766	–	–	70 766
Lease liability	–	2 947	–	2 947

Fair value estimation

Fair value measurement of assets and liabilities

The table below includes only those assets and liabilities that are measured at fair value including non-recurring items measured at fair value:

	Unaudited at 31 December 2020
	Fair value Rm	Level 1 Rm	Level 2 Rm	Level 3 Rm
Assets
Recurring fair value measurement
Fair value of investment property assets	131 288	–	–	131 288
Listed investments	1 021	1 021	–	–
Unlisted investments	825	–	–	825
Long-term loans granted	2 624	–	–	2 624
Derivative assets	493	–	493	–
Non-recurring fair value measurement
Non-current assets held for sale	56	–	–	56
Total assets measured at fair value	136 307	1 021	493	134 793
Liabilities
Recurring fair value measurement
Interest-bearing borrowings	63 256	–	63 256	–
Derivative liabilities	3 764	–	3 764	–
Total liabilities measured at fair value	67 020	–	67 020	–

	Unaudited at 31 December 2019
	Fair value Rm	Level 1 Rm	Level 2 Rm	Level 3 Rm
Assets
Recurring fair value measurement
Fair value of investment property assets	135 503	–	–	135 503
Listed investments	848	848	–	–
Unlisted investments	69	–	–	69
Long-term loans granted	2 426	–	–	2 426
Derivative assets	1 001	–	1 001	–
Non-recurring fair value measurement
Non-current assets held for sale	223	–	–	223
Total assets measured at fair value	140 070	848	1 001	138 221
Liabilities
Recurring fair value measurement
Interest-bearing borrowings	64 015	–	64 015	–
Derivative liabilities	766	–	766	–
Total liabilities measured at fair value	64 781	–	64 781	–

	Audited at 30 June 2020
	Fair value Rm	Level 1 Rm	Level 2 Rm	Level 3 Rm
Assets
Recurring fair value measurement
Fair value of investment property assets	139 029	–	–	139 029
Listed investments	837	837	–	–
Unlisted investments	922	–	–	922
Long-term loans granted	2 338	–	–	2 338
Derivative assets	1 607	–	1 607	–
Non-recurring fair value measurement
Non-current assets held for sale	84	–	–	84
Total assets measured at fair value	144 817	837	1 607	142 373
Liabilities
Recurring fair value measurement
Interest-bearing borrowings	70 766	–	70 766	–
Derivative liabilities	4 762	–	4 762	–
Total liabilities measured at fair value	75 528	–	75 528	–

The carrying amount of assets and liabilities that are not measured at fair value reasonably approximate their fair value due to their short-term nature. These include trade and other receivables, cash and cash equivalents and trade and other payables.

Movement in level 3 instruments

	Unaudited six months 31 December 2020
	Property assets Rm	Long-term loans granted Rm	Unlisted investments Rm
Opening balance	139 113	2 338	922
(Loss)/gain from fair value adjustments and translation of foreign operations	(7 840)	23	(97)
Accrued interest	–	278	–
Reclassification from trade and other receivables	–	–	–
Acquisitions	905	–	–
Acquisitions through the C&R business combination	–	–	–
Tenant incentives	289	–	–
Right-of-use assets	(135)	–	–
Disposals	(988)	–	–
Advancements	–	5	–
Settlements	–	(20)	–
Closing balance	131 344	2 624	825

	Unaudited six months 31 December 2019
	Property assets Rm	Long-term loans granted Rm	Derivative assets Rm	Derivative liabilities Rm	Unlisted investments Rm
Opening balance	117 637	76	607	(281)	96
(Loss)/gain from fair value adjustments and translation of foreign operations	1 924	–	(607)	281	(27)
Accrued interest	–	335	–	–	–
Reclassification from trade and other receivables	–	–	–	–	–
Acquisitions	2 511	2 208	–	–	–
Acquisitions through the C&R business combination	15 160	–	–	–	–
Tenant incentives	(1 083)	–	–	–	–
Right-of-use assets	–	–	–	–	–
Disposals	(423)	–	–	–	–
Advancements	–	33	–	–	–
Settlements	–	(226)	–	–	–
Closing balance	135 726	2 426	–	–	69

	Audited 12 months 30 June 2020
	Property assets Rm	Long-term loans granted Rm	Derivative assets Rm	Derivative liabilities Rm	Unlisted investments Rm
Opening balance	117 637	76	607	(281)	96
(Loss)/gain from fair value adjustments and translation of foreign operations	1 842	(89)	(607)	281	12
Accrued interest	–	228	–	–	–
Reclassification from trade and other receivables	–	2 119	–	–	–
Acquisitions	3 439	–	–	–	814
Acquisitions through the C&R business combination	15 160	–	–	–	–
Tenant incentives	46	–	–	–	–
Right-of-use assets	1 572	–	–	–	–
Disposals	(583)	–	–	–	–
Advancements	–	17	–	–	–
Settlements	–	(13)	–	–	–
Closing balance	139 113	2 338	–	–	922

Fair value estimation

Fair value measurement of assets and liabilities

Valuation process

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including level 3 fair values, and reports directly to the Group Financial Director.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third-party information, such as broker quotes or pricing services is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group’s Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
	Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

Valuation techniques and significant unobservable inputs

Level 2 instruments

Interest-bearing borrowings

	Description			Valuation technique			Significant unobservable inputs
	Interest-bearing borrowings (South Africa)			Valued by discounting future cash flows using a swap curve plus an appropriate credit margin of between 1.5% and 3.6% at the dates when the cash flows will take place (FY20: 1.5% to 3.6%).			Not applicable

The estimated fair value would increase/(decrease) if the credit margin were lower/(higher).

Derivative instruments

	Description			Valuation technique			Significant unobservable inputs
	Forward exchange contracts			Valued by discounting the forward rates applied at year end to the open hedged positions.			Not applicable
	Interest rate swaps			Valued by discounting the future cash flows using the South African swap curve at the dates when the cash flows will take place.			Not applicable
	Cross-currency interest rate swaps			Valued by discounting the future cash flows using the basis swap curve of the respective currencies at the dates when the cash flows will take place.			Not applicable

Level 3 instruments

In terms of the Group’s policy, annually at least 75% of the fair value of investment properties should be determined by an external, independent valuator, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued.

The balance of the South African portfolio was valued by Growthpoint’s qualified internal valuer.

The South African properties were valued at HY21 using the discounted cash flow of future income streams method by the following valuers who are all registered valuers in terms of section 19 of the Property Valuers Professional Act, No 47 of 2000:

Company		Valuer		Qualifications
Mills Fitchet KZN		T Bate		MSc, BSc Land Econ (UK), MRICS, MIV (SA), professional valuer
Eris Property Group (Pty) Ltd		C Everatt		BSc (Hons) Estate Management, MRICS, MIV (SA), professional valuer
Mills Fitchet PWV		PG Mitchell		NDip (Prop Val), MIV (SA), CIEA, professional valuer
Premium Valuation Services		Y Vahed		NDip (Real Estate in Prop Val), MIV (SA), professional valuer
Broll Valuation and Advisory Services		R Long		BSc, MBA, MRICS, professional valuer
Knight Frank		A Arbee		NDip (Real Estate in Prop Val), associate professional valuer
Spectrum Valuatoins & Asset Solutions		PL O'Connell		NDip (Prop Val), MRICS, professional valuer
Sterling Valuation Specialists		AS Greybe-Smith		BSc (Hons), MIV (SA), associate professional valuer
Mills Fitchet Cape (Pty) Ltd		S Wolffs		NDip (Prop Val), associate professional valuer

The Australian properties were valued at HY21 using the discounted cash flow of future income streams method by CBRE, Colliers, JLL, Knight Frank, m3property, Savills and Urbis. The fair value of properties not externally valued as at 31 December 2020 were based solely on Directors’ valuations.

The United Kingdom properties were valued at HY21 by independent qualified professionals valuers from CBRE Limited and Knight Frank LLP in accordance with Royal Institution of Chartered Surveyors (RICS) standards. The equivalent yield of the seven retail properties ranged from 5.30% to 13.17%.

At the reporting date, the key assumptions and unobservable inputs used by the Group in determining fair value were in the following ranges for the Group’s portfolio of properties:

Investment property

		Significant unobservable inputs and range of estimates used
Description	Valuation technique	Fair value Rm		Discount rate (%)		Exit capitalisation rate (%)		Capitalisation rate (%)		Rental growth rate (%)
		25 867		13.0		8.5		8.2		4.5
Retail sector		4 886		12.0 – 12.5		7.5 – 8.5		7.5 – 8.0		3.9 – 5.0
		10 160		12.5 – 13.0		7.8 – 9.0		7.8 – 8.5		3.9 – 5.0
		9 879		13.25 – 13.75		8.5 – 10.0		8.0 – 9.8		3.9 – 5.0
		942		14.0 – 15.25		9.5 – 14.0		8.8 – 13.8		3.8 – 4.8
		28 512		12.8		8.6		8.2		3.7
Office sector		10 676		12.75 – 13.25		8.0 – 9.8		7.8 – 9.3		3.0 – 4.0
		13 215		13.5 – 14.0		8.3 – 11.0		8.0 – 10.3		3.0 – 5.5
		4 621		14.25 – 14.75		9.0 – 10.8		8.8 – 10.0		3.0 – 5.0
		12 740		13.3		9.5		8.9		4.0
Industrial sector	Discounted cash flow model	4 132		12.75 – 13.75		8.5 – 10.5		8.3 – 10.0		3.0 – 5.0
		7 571		14.0 – 15.0		9.0 – 11.5		8.8 – 10.5		3.0 – 6.0
		439		15.25 – 16.0		10.8 – 112.5		10.3 – 13.8		3.0 – 5.5
		598		16.5 – 17.0		12.5 – 13.0		11.5 – 12.0		5.0 – 5.0
Healthcare sector		2 640		13.7		9.1		9.1		4.5
		32 762		6.2		5.3		5.6		2.9
GOZ office		19 745		5.75 – 6.25		4.6 – 6.1		4.1 – 5.9		2.1 – 3.6
		10 510		6.38 – 6.5		5.3 – 6.8		5.0 – 6.3		2.1 – 3.6
		2 507		6.75 – 7.25		6.3 – 7.0		6.0 – 6.8		2.1 – 3.6
		15 144		6.3		6.3		5.7		2.6
GOZ industrial		9 233		6.0 – 6.25		4.8 – 6.3		4.8 – 6.0		1.9 – 3.2
		4 845		6.5 – 6.75		5.0 – 10.5		4.8 – 8.3		1.9 – 3.2
		1 066		7.25 – 7.75		7.0 – 8.3		6.5 – 7.8		1.9 – 3.2
Total		117 665

Further assumptions are used in the valuation of investment property. The estimated fair value would increase/(decrease) if the expected market rental growth was higher/(lower), expected expense growth was lower/(higher), the vacant periods were shorter/ (longer), the occupancy rate was higher/(lower), the rent-free periods were shorter/(longer), the discount rate was lower/(higher) and/or the reversionary capitalisation rate was lower/(higher).

Long-term loans granted

	Description			Valuation technique			Significant unobservable inputs
	V&A Waterfront			Valued by discounting future cash flows using the South African swap curve at the dates when the cash flows will take place.			Counterparty credit risk
	Acucap Unit Purchase Scheme			Valued by discounting future cash flows using the South African swap curve at the dates when the cash flows will take place.			Counterparty credit risk
	Workshop 17			Valued by discounting future cash flows using the South African swap curve at the dates when the cash flows will take place.			Counterparty credit risk

Unlisted investments

	Description			Valuation technique			Significant unobservable inputs
	Edcon			Management’s best estimate of the fair value of Edcon is Rnil million taking into account comparative transactions in the market.			Forecast, budget and EBIT
	Lango			Valued by discounting future cash flows using the weighted average cost of capital at the dates when the cash flows will take place.			Forecast, budget and EBIT
	Kingfisher Limited Partnership			Valued by discounting future cash flows using the weighted average cost of capital at the dates when the cash flows will take place.			Forecast, budget and EBIT
	OneCart			Valued by discounting future cash flows using the weighted average cost of capital at the dates when the cash flows will take place.			Forecast, budget and EBIT
	SA SME Fund			Valued by discounting future cash flows using the weighted average cost of capital at the dates when the cash flows will take place.			Forecast, budget and EBIT

REIT RATIOS

For the six months ended and at 31 December 2020

The second edition of the SA REIT Association’s best practice recommendations was issued in November 2019, outlining the need to provide consistent presentation and disclosure of relevant ratios in the SA REIT sector. This will ensure information and definitions are clearly presented, enhancing comparability and consistency across the sector. It would have only been effective for Growthpoint for the year ended 30 June 2021, but Growthpoint has chosen to adopt the recommendations early. The comparative figures have been computed and disclosed on the same basis.

Growthpoint is an international property company that provides space to thrive with innovative and sustainable property solutions.

Introduction

Growthpoint is the largest South African primary JSE-listed REIT with a quality portfolio of 434 directly owned properties in South Africa (RSA) valued at R71.0bn, including four hospitals and one medical chambers valued at R2.7bn owned by Growthpoint Healthcare Property Holdings (RF) Limited (GHPH). Growthpoint has a 61.8% shareholding in GHPH.

Growthpoint has a 62.2% interest in ASX-listed Growthpoint Properties Australia Limited (GOZ), which owns 57 properties in Australia valued at R49.8bn and a 52.1% interest in LSE-listed Capital & Regional Plc (C&R), which owns seven properties in the United Kingdom valued at R11.3bn.

Growthpoint has three equity-accounted investments, valued at R16.0bn. Our 50.0% share of the V&A Waterfront (V&A) (R6.7bn) and 29.3% stake in London Stock Exchange AIM-listed Globalworth Real Estate Investments (GWI) (R9.2bn) are the largest of these investments.

Growthpoint has five unlisted investments, valued at R825.0m of which our 16.0% stake in Lango Real Estate Limited (Lango), formerly Growthpoint Investec African Properties Limited (GIAP) (R778.3m) is the largest.

GOZ owns a 15.0% stake in ASX-listed APN Industria REIT (ADI), valued at R1.0bn.

Growthpoint is included in the FTSE/JSE Top 40 Index (J200) with a market capitalisation of R43.1bn at 31 December 2020 (HY21). On average, 226.4m shares (FY20: 218.5m) with a value of R3.3bn (FY20: R3.9bn) were traded per month during the period. This makes Growthpoint a liquid and tradable way to own commercial property in South Africa.

The value of Growthpoint’s property portfolio is split between South African (inclusive of the V&A) (60.3%) and international (39.7%) assets. It is well diversified in the three major sectors of commercial property, being retail, office and industrial. Most of the RSA portfolio is in economic nodes within major metropolitan areas.

For HY21 the SA REIT net asset value (SA REIT NAV) of the Group decreased by 7.6% to 2 132 (FY20: 2 307) cents per share.

Impact of Covid-19 on the business

Our tenants have continued to be impacted as South Africa has moved through the various lockdown levels and in particular by the restrictions on alcohol sales and curfews imposed in December. Our retail tenants, particularly restaurants, gyms and cinemas are the worst affected. For the financial period we provided rental relief of R116.0m (FY20: R436.3m) to our tenants with R25.0m (FY20: R158.8m) in deferred rent and R91.0m (FY20: R277.5m) of rental discounts. We recovered R107.5m of deferred rent in the period and incurred R3.0m of Covid-19-related expenses. 68% of the total deferrals granted since the onset of Covid-19 have been recovered.

Historically the V&A has been a standout performer for Growthpoint. However, given its strong reliance on international and local tourism and heavy weighting to the hotel, retail and restaurant trade, it has suffered disproportionately to the rest of the South African portfolio.

Our international investments in GOZ and GWI were also affected by Covid-19, but to a much lesser extent as a result of their focus on office and industrial properties, as well as their strong customer bases weighted toward listed corporates and government in Australia, and large multinational tenants in Poland and Romania.

C&R with its 100% retail focus has faced extreme challenges with the UK experiencing its third lockdown since the first was imposed in March 2020.

Despite all of the above, our geographic and sectoral diversity has placed us in a position of strength to weather the Covid-19 storm.

Strategically we are committed to retaining our REIT status. While we remain solvent and liquid, we will continue to pay dividends twice a year, of at least 75% of distributable income.

Strategy

The Board remains acutely focused on liquidity and balance sheet management in the short term as it seeks to strike a balance between a conservatively managed and sustainable business in the interests of all our stakeholders. The Board is satisfied with the strides made in bolstering the balance sheet in the six-month period through various initiatives, including the R4.3bn equity raise (excluding costs), the R577.0m proceeds received from the Distribution Re-investment Plan (DRIP), R497.7m of asset sales and the R827.0m (post income tax) cash retained as a result of lowering the dividend pay-out ratio for FY20 to 80%. In addition, R499.0m cash will be retained with the consistent application of the 80% dividend pay-out ratio for HY21.

In line with Growthpoint’s vision “to be a leading international property company providing space to thrive”, the company’s strategy incorporates: the optimisation and streamlining of our RSA portfolio; the introduction of new revenue streams via the funds management business and trading and development for third parties; and further international diversification, with a focus on markets where we have a competitive edge and direct access to capital.

While our strategic pillars remain intact in the short to medium term, our priority remains the protection of our balance sheet and liquidity position.

The company’s objective is to grow and nurture a diversified portfolio of quality investment properties, providing accommodation to a wide spectrum of clients and delivering sustainable income distribution and capital appreciation, optimised by effective financial structures, with an acute focus on our capital light funds management model.

Reduction in distributable income per share (DIPS)

REDUCTION IN FUNDS FROM OPERATIONS (FFO) AND DIPS FOR HY21

Group SA REIT FFO for HY21 decreased by R831.0m from R3 072m for HY20 to R2 241m, or 27.1%. On a per share basis it decreased by 36.5% from 103.7c to 65.9c. Group distributable income decreased by R688m from R3 183m to R2 495m, or 21.6%. Distributable income per share (DIPS) decreased by 31.0% from 106.0c to 73.1c.

Basis of preparation

The condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council, and the requirements of the Companies Act of South Africa. The accounting policies applied in preparing these financial statements are in terms of International Financial Reporting Standards and are consistent with those applied in the previous annual financial statements.

These condensed consolidated financial statements are not audited by the Group’s independent auditor.

Mr G Völkel (CA(SA)), Growthpoint’s Group Financial Director, was responsible for supervising the preparation of these condensed consolidated financial statements.

GOZ

The investment in GOZ was accounted for in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates. The statement of financial position includes 100% of the assets and liabilities of GOZ, converted at the closing exchange rate at HY21 of R11.30:AUD1 (FY20: R11.98:AUD1).

A deferred tax liability of R3.8bn (FY20: R3.8bn) is included in the statement of financial position. This relates to capital gains tax payable in Australia if Growthpoint were to sell its investment in GOZ.

The statement of profit or loss and other comprehensive income also includes 100% of the revenue and expenses of GOZ, which were translated at an average exchange rate of R11.75:AUD1 for HY21 (HY20: R10.06:AUD1). The resulting foreign currency translation difference is recognised in other comprehensive income. A non-controlling interest was raised for the 37.8% (FY20: 37.8%) not owned by Growthpoint.

Included in the HY21 distributable income is a R494.7m dividend received from GOZ, compared to R542.0m for HY20. This relates to the GOZ dividend per share for HY21 of AUD10.0c compared to AUD11.8c in HY20. Included in normal tax in the statement of profit or loss and other comprehensive income is R55.0m (HY20: R71.3m) which relates to withholding tax paid on the distributions received from GOZ.

C&R

The investment in C&R was accounted for in terms of IAS 21 The Effects of Changes in Foreign Exchange Rates. The statement of financial position includes 100% of the assets and liabilities of C&R, converted at the closing exchange rate at HY21 of R20.03:GBP1 (FY20: R21.52:GBP1).

The statement of profit or loss and other comprehensive income also includes 100% of the revenue and expenses of C&R, which were translated at an average exchange rate of R21.23:GBP1 for HY21 (HY20: R18.62:GBP1). The resulting foreign currency translation difference is recognised in other comprehensive income. A non-controlling interest was raised for the 47.9% not owned by Growthpoint.

C&R did not declare a dividend for HY21.

V&A, GWI and other equity-accounted investments

The investments in the V&A (joint venture), GWI and the other equity-accounted investments were accounted for in terms of IFRS 11 Joint Arrangements and IAS 28 Investments in Associates. The equity-accounting method was used – the Group’s share of the profit or loss and other comprehensive income of these investments were accounted for.

Included in the HY21 distributable income is R172.8m from the V&A (HY20: R349.3m) and R186.8m from GWI (HY20: R333.6m).

Revenue and cost-to-income

Revenue increased by 12.5% for HY21 compared to HY20. RSA revenue decreased by 0.3%, and GOZ revenue increased by 11.5% compared to HY20. C&R is not comparable as revenue was only included for two weeks in HY20. The SA REIT cost-to-income ratio for the Group increased to 41.4% at HY21 from 37.3% at HY20. For RSA the ratio increased to 42.5% from 41.7% at HY20 and GOZ increased to 22.3% from 22.1% at HY20. The ratio for C&R was 82.9% for HY21.

Fair value adjustments

The revaluation of properties in RSA, GOZ and C&R resulted in an overall decrease of R3.4bn (2.5%) to R131.3bn for investment property (including investment properties classified as held for sale). The revaluation of properties resulted in a decrease of R2.6bn (3.6%) in RSA, an increase of R1.2bn (2.5%) in GOZ and a decrease of R2.0bn (14.8%) in C&R. Property assets held for trading and development are held at the lower of cost or net realisable value. The RSA valuation decrease was driven mainly by lower market rental growth assumptions on the back of a weak macro-economic environment and the impact of Covid-19.

Interest-bearing borrowings and derivatives were fair valued using the RSA or foreign exchange denominated swap curves at HY21, increasing the overall liability by R127.9m. These fair value adjustments and other non-distributable items, such as capital items, non-cash charges, deferred taxation and the net effect of the non-controlling interests’ portion of the non-distributable items, were transferred to the non-distributable reserve.

Finance costs

Finance costs, including finance costs and income received on interest rate swaps, increased by 21.5% to R1.7bn (HY20: R1.4bn). The interest cover ratio increased to 3.2 times for HY21 (FY20: 3.1 times).

The weighted average interest rate for RSA borrowings was 8.1% (FY20: 8.2%) (5.8% including foreign denominated loans and cross currency interest rate swaps (CCIRS) (FY20: 5.9%)). The weighted average maturity of debt for RSA borrowings decreased to 3.3 years (FY20: 3.6 years).

Finance costs for GOZ increased by 21.4% from R253.3m in HY20 to R307.6m in HY21 mainly due to a weaker Rand. Finance costs for C&R were R175.9m in HY21.

Finance income

Finance income decreased by 37.8% to R22.7m (HY20: R37.2m). This is mainly due to a decrease in interest received from banks and long-term loans granted.

Acquisitions and commitments

Growthpoint acquired one office property for R70.0m and 20 telecommunications assets in South Africa for R23.6m (included in Industrial) during the period. The development and capital outlay for RSA of R510.3m (HY20: R1.3bn) was for various developments and capital expenditure in the period, including Woodlands Office Park, Altron for R172.2m and Longkloof Studios for R68.0m. Growthpoint has commitments outstanding for RSA developments totalling R484.3m at HY21 (FY20: R634.0m) of which NTT Ltd, Samrand (R216.7m) and Longkloof Canopy, Cape Town (R79.3m) are the largest.

GOZ made no further acquisitions during the period but incurred development costs of R214.5m (AUD16.6m). The largest developments are 75 Dorcas Street, South Melbourne, VIC for R77.3m (AUD6.0m) and 1 Charles Street, Parramatta, NSW for R47.7m (AUD3.7m).

GOZ has commitments outstanding totalling R520.0m (AUD46.0m) (FY20: R608.5m (AUD50.8m)). These commitments relate to 1 Charles Street, Parramatta, NSW.

C&R incurred development costs of R145.0m (GBP6.8m) and has commitments outstanding totalling R68.0m (GBP3.4m) which relate mainly to development projects at Luton of R38.0m (GBP1.9m) and Walthamstow of R18.0m (GBP0.9m).

Funds Management

Part of Growthpoint’s strategy is to build a funds management business with assets of R15.0bn under management over the next three to five years. To this end we have already established two separately identifiable funds with total assets under management of R12.0bn.

• Lango Real Estate Limited (Lango), formerly Growthpoint Investec African Properties Limited (GIAP).

  Lango, a joint venture with Ninety One Limited, has raised USD301.0m from third-party investors (including a USD50.0m investment by Growthpoint). Lango owns eight quality office and retail assets valued at US$638.0m and has a NAV of US$330.0m at HY21.

• Growthpoint Healthcare Property Holdings (RF) Limited (GHPH).

  GHPH has thus far attracted approximately R1.0bn in investments from third-party investors. There is a significant pipeline of both acquisitions and greenfield developments.

  Growthpoint has an effective 61.8% interest in GHPH (R348.6m equity (FY20: R348.6m) and a convertible loan of R882.9m (FY20: R881.8m)).

Trading and development

Adhering to the limits previously communicated, the value of projects pre-identified as opportunities for trading and development for third parties in South Africa will not exceed 3.0% of the value of the South African portfolio and assets developed for our own balance sheet will not exceed 5.0%. In the present environment we have, however, scaled back all non-essential capital and development spend and will only proceed with opportunities which are client-driven or substantially pre-let.

Disposals and held-for-sale assets

Growthpoint disposed of five properties in the period (HY20: nine) for R497.7m (HY20: R433.8m), the largest being the Exxaro Corporate Centre at R243.0m. GOZ disposed of one property, 120 Northcorp Boulevard, Broadmeadows, VIC (FY20: zero) for R604.0m (AUD50.2m). C&R had no disposals for HY21.

At HY21, two RSA properties (FY20: two) valued at R55.5m (FY20: R84.4m) were classified as held for sale. No Australian or United Kingdom properties were classified as held for sale.

Arrears

Total RSA arrears at HY21 were R494.2m (FY20: R511.0m) with a loss allowance of R248.6m (FY20: R254.0m). This includes rental deferments granted to tenants as a result of Covid-19 of R58.9m (FY20: R141.4m). Total RSA bad debt write-offs and provisions were R67.2m (HY20: R20.8m).

Total GOZ arrears at HY21 were R14.0m (FY20: R9.7m) with no loss allowance (FY20: R2.8m). Total C&R arrears at HY21 were R461.8m (FY20: R300.0m) with a loss allowance of R168.2m (FY20: R13.2m).

Vacancy levels

At HY21, Growthpoint’s GLA and vacancy levels as a percentage of its total portfolio GLA were:

	GLA			Vacancy
	HY21   m2		FY20   m2	HY21 %		FY20 %
Retail	1 358 887		1 365 391	5.4		5.1
Office	1 683 456		1 672 010	18.0		15.4
Industrial	2 275 690		2 308 913	8.2		7.1
Healthcare	77 220		77 219	–		–
Trading and development	37 476		70 200	–		46.8
RSA total	5 432 729		5 493 733	10.3		9.5
V&A	232 134		227 415	2.3		1.5
GOZ	1 042 891		1 042 929	4.8		5.5
C&R	297 072		328 512	8.6		5.5
Total/average %	7 004 826		7 092 589	9.2		7.6

Vacancies increased across all the RSA sectors, except trading and development. Tenant retention remains a priority and we are driving it through various initiatives including the UNdeposit, SmartMove and Growthpoint’s resource efficient, sustainable Thrive Portfolio.

Borrowings, net working capital and liquidity

The SA REIT loan-to-value ratio for the Group (SA REIT LTV) was 40.7% for HY21 (FY20: 43.9%). The RSA LTV decreased to 35.5% (FY20: 39.8%), the GOZ SA REIT LTV decreased to 29.8% (FY20: 31.2%) and the C&R SA REIT LTV increased to 62.2% (FY20: 51.4%).

Growthpoint has consistently applied its policy for measuring the fair value of long-term interest-bearing loans and derivatives. There were no changes in valuation techniques, nor were there any transfers between level 1, level 2 and level 3 during the period. The Group has unsecured interest-bearing borrowings of R22.4bn (FY20: R24.5bn). All other interest-bearing borrowings across the Group are secured. Growthpoint has unused committed bank facilities of R5.0bn in RSA and separately R4.1bn (AUD407.5m) in GOZ and R467.0m (GBP22.0m) in C&R and cash of R1.1bn in RSA, R382.6m (AUD33.8m) in GOZ and R1.7bn (GBP84.1m) in C&R at HY21, which assures their ability to meet their short-term commitments.

Change in directorate

Andile Sangqu and Prudence Lebina were both appointed as Independent Non-executive Directors on 21 September 2020. Andile is Chairman of the Social, Ethics and Transformation Committee and also serves as a member of the Audit Committee and the Governance and Nomination Committee. Prudence serves as a member of the Risk Management and Audit Committees.

Mzolisi Diliza, Ragavan Moonsamy and Eric Visser all retired from the Board at the AGM on 8 December 2020 after 19, 15 and 18 years respectively.

Going concern

The directors have assessed the Group’s ability to continue as a going concern. As at 31 December 2020, the Group had a substantial positive net asset value and a robust liquidity position with access to R5.0bn in RSA, R4.1bn in GOZ and R467.0m in C&R in committed undrawn credit facilities. The following uncertainties occasioned by the Covid-19 pandemic were considered as part of the going concern assessment.

ACCESS TO LIQUIDITY

Stressed market conditions may impact debt funders’ risk appetite and limit access to liquidity.

BREACH OF COVENANTS

Loan-to-value and interest cover ratio covenants may come under pressure due to decreasing property valuations and rental income because of the expected economic downturn related to the pandemic. The maximum loan-to-value covenants the Group is exposed to is 55%, which is well above the current Group SA REIT LTV of 40.7%.

PROVISION FOR CREDIT LOSSES

The provision for credit losses and write-off of unrecoverable amounts may increase as tenants’ businesses are impacted by the pandemic globally.

COMPANY’S RESPONSE

The directors’ response to the pandemic included:

• Bolstering the Group’s balance sheet and liquidity position
• Establishment of a dedicated task team to implement a coordinated response across the business to ensure the health, safety and wellbeing of all stakeholders
• Implementation of business continuity plans to minimise disruption by initiatives implemented to curb the spread of the virus
• Curtailment of discretionary expenditure to make allowance for the anticipated costs associated with the various initiatives to combat the spread of the virus
• Frequent monitoring of the Group’s liquidity position
• Establishing and participating in the Property Industry Group in South Africa.

CONCLUSION

After due consideration, the directors have concluded that the Group has adequate resources to continue operating for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the financial statements.

Events after the reporting period

In line with IAS10 Events after the Reporting Period, the declaration of the dividend occurred after the end of the reporting period, resulting in a non-adjusting event that is not recognised in the financial statements.

Prospects

The majority of the Group’s assets are in South Africa, both by EBIT (74.5%) and by market value of property assets (60.3%), where the macro-economic environment remains deeply concerning. The effects of the pandemic, on top of a deeply depressed economy, have negatively impacted all three of our domestic businesses where property fundamentals were already weak. The recovery of the V&A is dependent on the resumption of international tourism. GOZ and GWI will recover faster given the low impact of the pandemic on their businesses, their strong balance sheets and liquidity positions as well as the strength of their tenancies. C&R has been severely impacted by the pandemic which has accelerated the structural trends that were already underway in the UK retail industry with the downturn being faster and more profound and the recovery anticipated to take much longer than previously expected.

Our prospects are inextricably linked to our operating environment. As the world and the RSA economies recover gradually, we have a tough number of years ahead of us. We are a strong and diversified business and our conservative approach to managing the business will stand us in good stead.

Strategically we are committed to retaining our REIT status and intend to continue to pay dividends twice a year, of at least 75% of distributable income.

INTERIM DIVIDEND

Notice is hereby given of the declaration of the interim dividend number 70 of 58.50c per share (80% of DIPS) for the period ended 31 December 2020.

Other information:

• Issued shares at 31 December 2020: 3 430 787 066 ordinary shares of no par value
• Income tax reference number of Growthpoint: 9375/077/71/7.

Shareholders are advised that the dividend meets the requirements of a “qualifying distribution” for the purposes of section 25BB of the Income Tax Act, No 58 of 1962 (Income Tax Act). The dividends on the shares will be deemed to be taxable dividends for South African tax purposes in terms of section 25BB of the Income Tax Act.

Tax implications for South African resident shareholders

Dividends received by or accrued to South African tax residents must be included in the gross income of such shareholders and will not be exempt from the income tax in terms of the exclusion to the general dividend exemption contained in section 10(1)(k)(i)(aa) of the Income Tax Act, because they are dividends distributed by a REIT. These dividends are, however, exempt from dividend withholding tax (dividend tax) in the hands of South African resident shareholders provided that the South African resident shareholders have provided to the Central Securities Depository Participant (CSDP) or broker, as the case may be, in respect of uncertificated shares, or the company, in respect of certificated shares, a DTD(EX) (dividend tax: declaration and undertaking to be made by the beneficial owner of a share) their form to prove their status as South African residents.

If resident shareholders have not submitted the abovementioned documentation to confirm their status as South African residents, they are advised to contact their CSDP or broker, as the case may be, to arrange for the documents to be submitted prior to the payment of the dividend.

Tax implications for non-resident shareholders

Dividends received by non-resident shareholders from a REIT will not be taxable as income and instead will be treated as ordinary dividends which are exempt from income tax in terms of the general dividend exemption section 10(1)(k) of the Income Tax Act. Any dividend received by a non-resident from a REIT is subject to dividend tax at 20%, unless the rate is reduced in terms of any applicable agreement for the avoidance of double taxation (DTA) between South Africa and the country of residence of the non-resident shareholder. Assuming dividend tax will be withheld at a rate of 20%, the net amount due to non-resident shareholders is 46.80c per share. A reduced dividend withholding tax rate in terms of the applicable DTA may only be relied on if the non-resident shareholder has provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the company, in respect of certificated shares:

• A declaration that the dividend is subject to a reduced rate as a result of the application of the DTA; and
• A written undertaking to inform the CSDP broker or the company, as the case may be, should the circumstances affecting the reduced rate change or the beneficial owner cease to be the beneficial owner, both in the form prescribed by the Commissioner of the South African Revenue Service.

If applicable, non-resident shareholders are advised to contact the CSDP, broker or the company to arrange for the abovementioned documents to be submitted prior to payment of the dividend if such documents have not already been submitted.

Salient dates and times

By order of the Board

Growthpoint Properties Limited
9 March 2021