Our opinion on the current state of GRT

Growthpoint (GRT) is South Africa's largest real estate investment trust (REIT) with a primary listing on the JSE. Prior to COVID-19, it consistently grew its dividends 3% above the inflation rate on average over the last 15 years. The company owns 434 properties in South Africa worth R71bn. In addition, it has a 62.2% interest in Growthpoint Properties Australia (GOZ) listed on the Australian Stock Exchange (ASX), owning 57 properties worth R49.8bn, and an 18.2% investment in ASX-listed Industria REIT. It also holds 4 equity-accounted investments worth R16bn - including a 50% holding of the V&A Waterfront in Cape Town, a 29.4% stake in Global Real Estate Investments listed on the London Stock Exchange (LSE), and a 21.6% interest in Global Worth Poland Real Estate (GWRE) listed in Warsaw. Altogether, Growthpoint has 59.2% of its assets in South Africa and 40.8% elsewhere.

The company has acquired a 60.8% stake in Capreg listed in London and on the JSE, owning 7 properties in the UK worth R14.8bn. We regard Growthpoint as a high-quality blue-chip property group and a solid long-term investment for private investors. On 20th July 2021, the company reported damage to its properties following the unrest in Natal. It said that Watercrest Mall (50% owned) and City View were looted and damaged, representing 4.64% of total retail GLA, as well as 5 industrial properties, representing 2.73% of the company’s industrial gross lettable area (GLA).

The company is battling with an oversupply of office space following COVID19 and the work-from-home move. In its results for the year to 31st December 2023, the company reported revenue up 4% and finance costs up 16.9%. The loan-to-value (LTV) was 42%, which is too high in our view. Headline earnings per share (HEPS) fell by 34.2%. The company said, "Interest rates, globally and domestically, are expected to be higher for longer, impacting both our domestic operations and offshore investments. The second half of FY24 presents further domestic volatility with the SA national elections on 29 May 2024, coupled with ongoing load shedding and infrastructure deterioration."

Technically, the Growthpoint share fell heavily in March 2020 as the pandemic took effect and has been moving sideways and downwards since. The share is still trading well below its NAV. We see it as relatively cheap at current levels but it may fall further. On 12th November 2020, the company announced that it had raised R4.3bn through an accelerated book-build in which it sold 358.3m shares for R12 each.