Archives for September 2019

New beetle. New solution.

Emira leads the property sector’s response to tackling invasive bug infestation in Johannesburg

It’s not the beetle: it’s who it hangs out with that’s the trouble. And now the party is getting out of control, so much so that South Africa’s urban forests are under threat.

In 2017, the polyphagous shot hole borer (Euwallacea fornicatus) – or PSHB – was detected for the first time on London plane trees in the KwaZulu-Natal National Botanical Gardens, in Pietermaritzburg.

Since then, evidence of the beetle’s presence has been found in 151 species within the country, and the invasive little borer from Southeast Asia has spread all the way to Johannesburg, bringing with it a picnic of its favourite fungi.

And this is the real problem.

As they bore into the wood, the beetle relies on the fungus (Fusarium euwallaceae) to feed its adults and larvae. It is this fungus that slowly kills the tree, not the bug itself – the fungus grows along the beetle’s tunnels, blocking the tree’s vascular system, causing the dieback of the terminal branches and leaves, and eventually the death of the entire tree.

The advancing beetles have also been noted in Durban, Richard’s Bay, Pietermaritzburg, George, Knysna, and Hartswater.

However it is Johannesburg, with its dense urban forest that has been hit particularly hard.

To date, there had been no single successful treatment of the infestation: a heavily infected tree needed to be urgently treated or removed, as the contagion easily spreads. But now Johannesburg is hitting back hard too, thanks to a pioneering partnership between Emira Property Fund and the newly-formed Beetle Busters, who have successfully registered a ground-breaking treatment for the infestation.

During the upgrade of Emira’s Hyde Park Lane Office Park, it became apparent that the attractive wooded grounds were heavily infected with the shot hole borer. One infected tree can contain over 100 000 beetles, and the females can fly up to 1km, although most beetles only fly to the surrounding trees.

Our initial concern was that we would have to fell all of the infected trees in the park, which would substantially change the environment of the office park. Fortunately, we were introduced to Beetle Busters, who are partnering with Emira and using Hyde Park as a test case for the treatment and eradication of the borer – hopefully saving most of the trees in the park.

Justin Bowen,Senior Development Manager at Emira Property Fund

Historically, the treatment for PSHB has been to poison the beetle itself, but this often proves toxic to the host tree. Beetle Busters’ new treatment targets the fungus instead, technically starving the beetle while killing the fungus before it can kill the tree.

If successful, this will be a ground-breaking intervention for South Africa, which could arrest the nationwide infestation and save our trees. The treatment at Hyde Park Office Park has been completed and we hope to be able to confirm the results as we move into spring and the trees start their re-growth cycle.

Tim Conradie, of Beetle Busters.

Emira is exceptionally proud to be part of this ground-breaking test case and cannot wait to see the results in the coming months. We really are hoping that this will be the ‘silver bullet’ that we need to keep our treed cities.

Geoff Jennett, CEO of Emira Property Fund

Justin Bowen adds: “The response continues Emira’s environmental leadership in SA’s property sector. Emira was the first company in Africa to have our Science-Based Carbon Reduction Targets approved by the SBTi. The country’s trees are one of the largest carbon sinks that SA has as a weapon to combat climate change, and we are hoping that our pilot will be the first of many successful treatments to eradicate the devastation that the shot hole borer is having on our urban forests.”

Texton continues rebuilding towards a rerating

Texton Property Fund today reported a total dividend of 71.37 cents per share for its full-year ended 30 June 2019.

This financial year has been the toughest in the company’s history. Texton is a diversified JSE-listed SA REIT with total property assets valued at R4.4bn, of which 58.5% by value is in South Africa and 41.5% in the United Kingdom. Besides facing weak and deteriorating property fundamentals in both SA and UK markets, the company reconstituted its board and executive management during the year to strengthen its leadership and stabilise its management. Its new management also dealt with several inherited legacy issues, including the PIC Put Option.

While Texton’s distributions were 20.1% down from 89.31 cents per share in the 2018 financial year as a result of negative market factors including rental reversions, vacancies, an oversupply of space, prolonged let-up periods, lower foreign exchange gains and increased funding costs, this was in line with expectations and the company made significant operational progress.

After his first full six-month period at Texton’s helm, new CEO Marius Muller says, “The tough macroeconomics in both our markets weakened property fundamentals. Rather than dwelling on factors over which we have no control, we remained firmly focused on what we can manage. We made pleasing operational advances that place Texton on a much firmer footing for the future.”

Muller, who has been tasked with the groundwork that will return Texton to positive performance, has declined his contractual bonus and increase in compensation, saying that difficult but necessary decisions have had to be made to bring Texton back in line with shareholder and stakeholder expectations.

We are confident that Texton will come through this challenging cycle and emerge stronger. We believe the necessary steps have been taken to provide a robust platform for growth. By focusing on the fundamentals, we are reinforcing Texton’s solid foundations and strengthening our portfolio and balance sheet. However, turning Texton around in difficult and unsupportive macroeconomic environments is proving to be a more gradual process than we would have liked. As a small market cap company, Texton is relatively more exposed to the impacts of the difficult operating environment. It would, however, be equally able to benefit from and capitalise on a future upturn in the market.

Marius Muller, CEO of Texton Property Fund

Texton achieved substantial success securing new lettings, retaining tenants and protecting property income streams through early renewals, which resulted in portfolio occupancies, including its 50% stake in Broad Street Mall in the UK, improving from 10.5% to 9.2% in the second half of the financial year. In the process, Texton increased its exposure to blue-chip, listed and national tenants in the portfolio by 5.5% to 69.7% and renewed 83.6% of leases expiring in the year. Texton’s collections also improved, reducing arrears from 4.5% to 2.0% of billings during the year. This translates to a 55.6% improvement in cash receipts.

In this market, however, securing tenants and protecting revenue streams is only possible at the cost of rental growth. Economic erosion and the resulting rental reversions in the portfolio reduced property revaluations. Texton’s like-on-like held property portfolio value decreased 13.2% to R4.154bn, with most of the reduction contributed by the SA portfolio.

Even so, Texton continues to maintain well-positioned and defensive portfolios in both its markets underpinned by good properties with strong covenants. Its office properties have performed well despite oversupply and intense competition. The industrial property portfolio performed as expected. Its retail portfolio has done remarkably well and enjoys high occupancies across all properties and regions.

Texton introduced more aggressive broker and tenant incentives to boost its leasing. During the year in SA, it concluded 108 new leases and renewals over nearly 95,000sqm, indicating the success of its focused and proactive approach in a challenging market. Its vacancy levels improved in SA from 12.6% to 10.8% in the second half of the financial year, with the weighted average lease expiry increasing 16% to 2.9 years. All of its wholly-owned UK assets remain fully let and income producing, contributing strong income returns to the company.

Texton’s refinancing programme is one of its biggest challenges and priorities and, having resolved the PIC Put Option in the first half of the year, the focus has shifted to decreasing gearing levels. However, the progress made is not yet showing in the numbers. Texton’s loan-to-value ratio increased from 42.7% to 47.7%. It aims to bring this below 40% and to diversify its lending portfolio.

An aggressive programme of non-core asset disposals, which is being stepped up, will support Texton’s drive to reduce debt and selectively reposition its portfolio. During the year in the UK, Texton disposed of Tesco Chobe at Quorum Business Park in Newcastle, let to Tesco Bank, for GBP12m. The property transferred eight days after year end. The proceeds were used to de-leverage the Santander loans repayable in February 2020 and significantly de-risk the repayment burden of this tranche of debt, while improving UK portfolio metrics. In SA, Texton completed the strategic sale of two non-core properties and allocated the proceeds to reduce debt. To further support its refinancing and achieve its debt strategy, Texton intends to dispose of a further 13 properties of R326.8m already held for sale in the year ahead.

We’ve made good progress in a short time with the full confidence of our board and an excellent team supporting us. We have endeavoured to improve our relationships with our shareholders and stakeholders and set a course towards enhanced total returns to support a re -rating of Texton’s share price. Texton’s 2020 financial year distribution is expected to decrease by around 20%, however, we are confident that we will resolve all inherited legacy issues during year.

Marius Muller, CEO of Texton Property Fund

Growthpoint posts 5.3% growth

Growthpoint posts 5.3% growth in full-year distributable income Growthpoint Properties has posted results for the year to 30 June 2019 with distributable income growth of 5.3% and dividends per share up 4.6%, outperforming its market guidance marginally. The solid set of results extends Growthpoint’s track record of uninterrupted dividend growth for investors to 16 years.

South Africa’s largest SA primary listed REIT recorded a 4.9% increase in group property assets to R139.4bn, with most of the increase coming from Growthpoint’s international investments.

Norbert Sasse, Group CEO of Growthpoint Properties, attributes this positive performance to two of the company’s key strategies, internationalisation and generating new income streams from third-party trading and development and funds management.

“We are pleased to report that Growthpoint has achieved the growth that we set out to deliver for the year. The road has not been an easy one, but we have delivered a robust set of results with significant strategic gains achieved in an incredibly harsh operating environment. Fortunately, Growthpoint’s size and diversity on three continents and across property sectors continues to ensure that it is defensive. While property fundamentals in SA have been weak, our international investments have performed well and are in strong and supportive property markets.”

Norbert Sasse, Group CEO of Growthpoint Properties

Growthpoint creates value through innovative and sustainable property solutions that provide space to thrive. It is the most liquid and tradable way to own commercial property in SA. Growthpoint’s quality earnings are underpinned by high-quality property assets. Growthpoint owns and manages a diversified portfolio of 508 property assets including 450 properties across SA valued at R78.3bn and a 50% interest in the properties at V&A Waterfront, Cape Town, valued at R9.6bn. Growthpoint owns 57 properties in Australia valued at R38.7bn through a 66.0% holding in ASX-listed Growthpoint Properties Australia (GOZ). It also owns 60 properties in Romania and Poland, 100% valued at EUR2.8bn through its 29.8% share in LSE AIM-listed Globalworth Investment Holdings (GWI).

Currently the 25th largest company in the FTSE/JSE Top 40 Index, Growthpoint is a constituent of the FTSE EPRA/NAREIT Emerging Index. It has also been included in the FTSE4Good Emerging Index for the third successive year and in the FTSE/JSE Responsible Investment Index for a decade.

Growthpoint upheld it Moody’s national scale rating of AAA.za with a stable outlook. As a principally SA operation, its global scale rating is capped at the sovereign credit rating of Baa3. The company’s balance sheet is well capitalised and its gearing is conservative. Its consolidated loan-to-value ratio stayed well within covenants, and while increasing slightly during the year from 35.2% to 36.4%, it has since decreased to 35.1% following GOZ’s capital raise.

During the year, Growthpoint’s public bond issues totalled R2.6bn for three to 10 years at spreads of Jibar plus 109 to 190 basis points. Growthpoint issued its debut CPI-linked bond in June 2019, raising R600m of 10-year bonds and at an effective rate of 180 basis points above Jibar. R3.7bn of debt matured during the year and R3.3bn of FY20 debt maturities were repaid or refinanced in advance. At year-end, 57.1% of debt was unsecured, 86.5% of interest rate exposure was fixed, and the average term of debt extended to four years.

Making the most significant contribution of 2.0% to Growthpoint’s distributable income growth for FY19 was its investment in GOZ. Growthpoint invested a further R1.3bn into GOZ during the year as part of its internationalisation strategy. GOZ had a busy year overall as it continued recycling assets, GOZ now has 57 property assets in Australia’s favoured office and industrial sectors, concentrated in robust markets along the country’s Eastern Seaboard. Its portfolio showed 10% like-for-like asset value growth and now has a five-year weighted average lease expiry. GOZ successfully undertook two equity raises which were oversubscribed, and after the close of its most recent capital raise its free float increased to around AUD1.3bn.

“GOZ is guiding 3.5% growth in distributions to 23.8 AUD cents per share for FY20. Its balance sheet is in excellent shape. It has lowered its debt costs and is well positioned for acquisitive growth in addition to its AUD353m development pipeline”

Norbert Sasse, Group CEO of Growthpoint Properties

The investment in Central and Eastern Europe, through GWI contributed 1.6% of Growthpoint’s distributable income growth. Growthpoint furthered its offshore drive by investing another R241.6m into GWI during the year. Growthpoint now owns 29.8% of GWI, which simplified its structure during the year. GWI had an active year, completing six acquisitions in Poland of EUR574m and making excellent progress in delivering its strong development pipeline in Romania. It has 60 office and industrial assets, 37 properties in Poland and 23 in Romania, and its portfolio value increased 33.3% during the year. All three major credit rating agencies have given GWI investment-grade ratings, it completed a significant EUR500.5m capital raise, and continues to be well placed for acquisitive growth.

“GWI is enjoying a strong macroeconomic environment and robust property fundamentals with excellent multinational tenant demand in both Romania and Poland. It has access to accretive development opportunities in Romania and enhancing acquisition opportunities in Poland”

Norbert Sasse, Group CEO of Growthpoint Properties

With its amplified investment in both GOZ and GWI this year, 30.3% of Growthpoint’s assets are now offshore and contribute 23.3% to its earnings before interest and tax (EBIT). The international contribution to Growthpoint’s dividend growth was supported by favourable exchange rates.

In SA, Growthpoint’s 50% stake in Cape Town’s V&A Waterfront made a positive 1.5% contribution to its distributable income growth. Its strong property fundamentals, contrary to the rest of SA, delivered rental renewal growth of 4.0% and positive retail sales and trading density growth. The 4,000sqm extension of its flagship Woolworths store will be complete for the 2019 festive season and the new Battery Park and Parkade opened, supporting further uses and growth in the precinct. Demand for P-grade office space at the V&A remained strong, with very low vacancies and several strategic leasing coups. The lease for Deloitte’s new 8,500sqm head office development will commence on 1 October 2020 and the precinct is the preferred bidder for the new 9,000sqm Investec Bank building. Hotel occupancies at the V&A have returned to pre-water-crisis levels, and its Cruise Liner Terminal welcomed 66,000 passengers, a 16% increase on last year.

“Development at the V&A Waterfront is focused on the Canal District and the Pierhead District, while it is also advancing the masterplan for future development at Granger Bay. The V&A will continue to seek opportunities to enhance earnings, increase bulk and densify the precinct,” says Sasse.

Growthpoint’s funds management business contributed 0.4% of the company’s distributable income growth, with Growthpoint Healthcare Property Holdings (GHPH) investors receiving a 13.0% total return. The business has two active funds so far, GHPH and Growthpoint Investec African Fund (GIAP), and a pipeline of transactions that will soon see its combined assets under management surpass R10bn.

GHPH has a R2.6bn portfolio of five assets and has attracted some R700.0m in third-party investments. It is investing R100.0m in expanding two of its hospitals and has a significant pipeline of acquisitions and developments, including the Pretoria Head and Neck Hospital. GIAP drew down the first USD32.5m of its USD212m committed capital during the year to acquire 97.5% of Achimota Retail Centre in Accra, Ghana. Then, post year-end, it successfully acquired 100% of Manda Hill Shopping Centre in Lusaka, Zambia. All of its committed capital is expected to be invested by the end of 2019.

Third-party trading and development fees of R75.0m contributed 1.1% of Growthpoint’s distributable income growth. During the year, R2.7bn of new developments were in various stages of completion for Growthpoint’s balance sheet and another R900m for third parties.

“We continue to build a sustainable pipeline of opportunities that will ultimately enhance the distribution contribution of the South African business. This was an active year for refurbishing and refreshing our retail portfolio, undertaking new quality green-certified developments for our top-end clients and building iconic modern logistics warehouses in the industrial sector,” explains Sasse.

With the strained SA economy, Growthpoint’s domestic portfolio, which carries the Group overhead, diluted distributable income growth slightly by 0.2%. Continuing its portfolio optimisation drive, Growthpoint sold 14 assets for more than R2.9bn and has another seven assets of R325.4m held for sale. Property values remained flat at R78.3bn.

Growthpoint successfully let more than 1.25 million square metres of space in SA in FY19 and increased tenant retention, with an improved renewal success rate of 70.1%. Importantly, portfolio arrears were kept firmly in check. Rentals contracted 5.3% on renewal and vacancies deteriorated in all three property sectors – retail, office and industrial – increasing from a combined 5.4% to 6.8%. In a difficult environment, tenant installation allowances and other incentives are costing more.

Despite constrained consumer spending, Growthpoint’s retail trading densities grew 1.9% during the year compared to 1.3% in the previous year. It achieved key letting successes including securing Dis-Chem and Pick n Pay for the long-vacant 3,600sqm ex-cinema space at Lakeside Mall, Benoni, and introducing H&M to Walmer Park Shopping Centre, Port Elizabeth. Growthpoint also invested R110.0m in the Edcon recapitalisation and reduced its exposure to Edcon by 11% during FY19 alone. Office occupancies and rentals remained under pressure, but Growthpoint upheld escalations of 8.1% in force over 73% of its office revenue. Even facing increased business failures and closures, Growthpoint’s industrial portfolio achieved renewal rental growth – the only subsector to do so – improving from negative 3.3% to positive 0.3%. Workshop17, 50% co-owned by Growthpoint, opened two new spaces at The Harrington and 32 of Kloof, both in Cape Town, growing to seven iconic co-working spaces with over 2,000 members and 500 companies.

“The very tough and deteriorating domestic economy is placing pressure on all SA property fundaments, which are expected to deteriorate further. As such, earnings from SA are expected to be dilutive to the Group in the year ahead. However, Growthpoint is advantageously positioned with its strong balance sheet, diversification across geographies and sectors, sustainable quality of earnings and ongoing commitment to best-practice corporate governance. With this in mind, Growthpoint expects dividend growth for the year ahead, if any, to be nominal.”

Norbert Sasse, Group CEO of Growthpoint Properties

Growthpoint’s R240m Sterling Industrial Park

R240m Sterling development by Growthpoint in Centralpoint innovation district, Samrand, nears completion Growthpoint Properties’ R240m Sterling Industrial Park development in its Centralpoint innovation district is bringing to life the next phase of this major high-tech precinct.

Sterling Industrial Park spans 27,000sqm of gross lettable area, and will comprise eight freestanding units of various sizes, ranging from 2,500sqm to 4,500sqm.

The first two units are already occupied by Screamer Telecoms and Daming Aluminium. The next four units were completed recently and are available for occupation, while Sterling Industrial Park’s final two units will be completed before the end of 2019.

Security, power and efficiency are the major considerations for businesses in this market, and Sterling Industrial Park provides it all, and at an extremely high level

Leon Labuschagne, heads of Growthpoint’s industrial development team.

Offering exceptional security, this secure park within a secure precinct affords multiple levels of access security. Besides the 24-hour Centralpoint precinct security, Sterling Industrial Park has its own perimeter fencing and security gatehouse serving all units, and each unit has its own gatehouse and boundary fence.

Sterling Industrial Park also offers its occupants the ability to upgrade their electrical power to meet their operating needs. Each unit is able to house client generators and back-up power and has the structural strength to accommodate rooftop solar panels. The buildings include energy-efficient air conditioning and lighting, and are designed according to sustainable green building principles.

Every unit in the park has a dedicated yard with easy delivery access, large turning circles, and both dock and on-grade facilities incorporated in the building. All have 9m eaves height, which is generous for units of this size, and are sprinkler protected. Flexible offices catering to each business’s unique needs, are also standard features. Because of its location in Centralpoint, the park also offers fibre and is set among beautiful, landscaped gardens.

The significant Growthpoint-owned Centralpoint development spans around 42 hectares of land with 220,000sqm of development potential. It is distinguished by the appeal and functionality it offers to innovative modern businesses and high-tech concerns.

Centralpoint is a vibrant, growing business community in a high-demand area with excellent access, and many benefits and amenities, including all-important public transport. It is strategic for Growthpoint as we further strengthen the logistics and warehousing component of Growthpoint’s diverse industrial portfolio

Errol Taylor, Head of Asset Management: Industrial at Growthpoint.

Centralpoint is conveniently located in Samrand, just off the N1 between Johannesburg and Pretoria in the greater Midrand area with easy access to the east and west of Johannesburg and Pretoria. Situated along Samrand Avenue, it is at the epicentre of Waterfall City, Midstream and Centurion, surrounded by growing residential neighbourhoods, schools, healthcare facilities and shopping centres. It enjoys superb highway access to the N1 North and South, and N14.

Sterling Industrial Park is Growthpoint’s second major development in Centralpoint, which is being rolled out by Growthpoint’s Trading and Development team.

Developing Sterling Industrial Park, and the Centralpoint district, is market-driven and responds to the demand for quality, efficient, high-tech, logistics and warehousing facilities in great locations. Its prime position is one of its biggest attractions. We have completed tailored developments for Growthpoint itself and third parties, and we believe that being at Centralpoint is astute.

Rudolf Pienaar, Growthpoint’s Chief Development and Investment Office

Growthpoint provides space to thrive with innovative and sustainable property solutions. It has established itself as one of South Africa’s leaders in developing signature buildings tailored to the exacting requirements of leading local and multi-national brands and businesses. It is the largest South African primary listed REIT on the JSE and owns the most significant number of green-certified buildings in South Africa, providing quality spaces that work best for its clients.

Fairvest annual results

Fairvest Property Holdings Limited (“Fairvest”) today announced results for the year to 30 June 2019, with annual distributions increasing by 8.1% to 21.773 cents per share.

“We are pleased to be able to deliver above market distribution growth in what can only be described as an extremely tough economic climate. Fairvest’s continued financial outperformance is attributable to its focus on a differentiated sector of the market and its experienced management team who has managed the property portfolios through many different economic cycles. Our persistent drive to excel at property fundamentals continues to be reflected in low vacancies and record- low arrears, high tenant retention and solid growth in net property income.”

Darren Wilder, Chief Executive Officer of Fairvest

Fairvest has been one of the best performing property stocks in the South African market, delivering inflation-beating dividend growth for more than six years and substantially outperforming the SAPY index over 1, 3 and 5 years.

Fairvest maintains a distinctive focus on retail assets in underserviced, high growth sub sectors. The portfolio is weighted toward nonmetropolitan and rural shopping centres, as well as convenience and community shopping centres servicing the lower income market, in high-growth nodes, close to commuter networks.

Wilder said that the company has performed well in tough economic conditions as it has a well-defined strategic framework with includes not straying from its portfolio focus of high-quality peri-urban and rural community centres with clear value extraction opportunities. The company favours performance over size and has therefore been disciplined in its pursuit of value adding transactions, only at the right price, to benefit the company and its shareholders over the long term. To maximise its participation in attractive new opportunities coming to the market, the company has developed strong strategic relationships with experienced developers and landlords of both brown and greenfield projects where it often assumes a structured funding role for its strategic partners. Its low gearing affords it the ability to take advantage of opportunities and make yield accretive acquisitions. Wilder went on to say “Although this will remain a strategic objective it is not a strong focus until we see improved trading conditions

X