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Redefine comments on transformative potential of CID’s

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In Johannesburg, City Improvement Districts (CIDs) are playing a crucial role in urban development and management. These districts, driven by collaboration between property owners and tenants, are addressing critical urban challenges and enhancing the quality of our business environments.

As a stakeholder in South Africa’s property sector and a key player in several CIDs, I’ve observed first-hand the significant impact of these initiatives on our urban landscape.

Understanding CIDs

A CID is a defined area where property owners collaborate to provide supplementary services beyond those offered by local municipalities. In areas where municipal services struggle to meet the growing demands of our dynamic cities, CIDs step in to elevate the urban experience. CIDs provide a range of crucial additional services, including enhanced security measures, cleaning operations, and various urban management initiatives such as traffic management, landscaping, pothole and traffic light repairs that improve the overall business environment.

The funding model for CIDs involves property owners paying levies to support additional services. At Redefine Properties, we’ve been at the forefront of this urban evolution, taking an active role in shaping the governance and strategic direction of CIDs where our properties are located. In most instances where Redefine participates in CIDs, a member of our team is assigned as an active director on the CIDs’ board to ensure that the funds collected are well spent and that the necessary governance checks and balances are in place. Redefine ensures that we have clean audits on all CIDs that we participate in each year.

This collaborative approach between property owners allows CIDs to become powerful tools for this level of revitalisation. They not only maintain but actively improve the quality of our shared urban spaces, contributing significantly to the attractiveness and competitiveness of key business areas in Johannesburg.

The economic impact of CIDs

But why should this matter to you, whether you’re a Redefine tenant, business owner, property investor, or simply someone who cares about the future of our cities? The answer lies in the ripple effect of urban redevelopment. A well-managed CID doesn’t just improve the aesthetic appeal of an area; it becomes a catalyst for economic growth within and around the demarcated CID area.

Businesses thrive in environments where customers feel safe and comfortable. Property values stabilise and increase where there are successful CIDs in place. Employment opportunities multiply as the area attracts new investments. In essence, CIDs are not just about maintaining streets; they’re about nurturing the very ecosystem that allows our urban economies to grow.

Sandton Central: A success story

Take, for instance, Sandton Central, Johannesburg’s financial capital, which has maintained its status as a world-class urban centre thanks in large part to the tireless efforts of its CIDs which have been in place since 2003.

Driven by the commercial property owners, including Redefine, the Sandton Central Management District was founded to ensure the creation of an exceptional experience in this key node of Johannesburg. It was established for the employee, visitor, tourist, shopper, property owner and resident of Sandton Central and thus focuses on how this area can better serve these stakeholders. Their team of public safety ambassadors, dedicated JPMD cars with paramedic staff, and on the ground cleaning staff work around the clock, ensuring that Sandton remains a beacon of urban excellence.

As a significant property owner in Sandton, Redefine has played a key role in this CIDs preservation and further transformation. Recently, Redefine as well as other property owners and tenants within the precinct partnered with the City of Johannesburg’s road agency, Eskom and the Sandton Central Management District to power traffic lights at major intersections using generators from its buildings during loadshedding. This initiative has led to all but four intersections being powered by private owners in the event of load shedding or an electrical fault. This hands-on approach has allowed us to pioneer innovative solutions to urban challenges, contributing to Sandton’s success story.

Legal challenges and the need for reform

However, the road to urban revitalisation is not without its obstacles. In 2015, a Supreme Court of Appeal judgement in the Randburg Management District case sent shockwaves through the CID community. By questioning the legality of CID levies under the Gauteng City Improvement Districts Act, this ruling effectively rendered CID funding voluntary. This decision has significant practical implications: without a secure legal basis, CIDs face uncertainty in their operations and long-term planning, potentially undermining their ability to provide consistent, high-quality services.

This legal uncertainty has increased the difficulty of starting new CIDs and the ongoing sustainability of existing CIDs, but I believe it also presents an opportunity for meaningful reform. As industry leaders, we have a responsibility to advocate for a robust provincial and/or municipality legal framework that will secure the long-term sustainability of CIDs. Why? Because this isn’t just about protecting our investments; it’s about safeguarding the future of our cities.

The CID imperative

 CIDs have proven their worth in transforming urban spaces and driving economic growth, as evidenced by success stories like Sandton Central. However, their future hinges on establishing a recognised legal framework at the municipal level in Gauteng and potentially nationwide.

At Redefine, we’re actively working to strengthen and expand the CID model. We’re advocating for clear legislation, engaging with stakeholders, and investing in innovative urban management solutions. Our commitment stems from our belief in CIDs’ potential to drive urban revitalisation.

We invite all stakeholders – other property owners, our tenants, and city officials – to join us in recognising the value of well-managed CIDs and strengthening this crucial tool for urban development. Your active participation, from governance to advocacy, is essential.

Written by Scott Thorburn, National asset manager – Office at Redefine Properties

 

Hyprop exceptional performance from SA and EE portfolios

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Tuesday, 17 September 2024. Hyprop, the owner of dominant retail centres in South Africa (SA) and Eastern Europe (EE), reported distributable income for the year to 30 June 2024 that was better than its March guidance. Management is confident that it’s set for future growth as it delivers on a number of strategic priorities and anticipates an easing of the recent tough trading environment in the year ahead.

“Discernible green shoots in the global and domestic economies, combined with Hyprop’s sustainable business model, excellent property portfolios, strong balance sheet, prudent capital management, and continuous investment in keeping the portfolio relevant, in our human capital and environmental initiatives, should position us to deliver further growth and value for all our stakeholders over the long term,” CEO Morné Wilken says.

“The Group’s outlook is positive, despite the difficult global economic environment and unique challenges in each of the regions in which we operate. We are optimistic that the peak of inflation and interest rates is near, but the Group’s financial performance will still be negatively impacted in the short term by high interest costs and the timing of the implementation of the sale of the sub-Saharan Africa portfolio.”

Hyprop’s distributable income was 370.4c a share for the year to 30 June 2024, a reduction of 8.6% from 405.2c reported for the year to 30 June 2023. In March 2024, management warned shareholders there would be a 15-20% decrease, owing to higher interest costs for longer, an increase in issued shares due to the dividend reinvestment plan, further foreign exchange losses on its Nigerian properties and the acquisition of Table Bay Mall. The reasons for a better outcome included a strong operational performance from the SA and EE portfolios as well as improved cash management, lower hedging costs and reduced margins on refinanced borrowings, the impact of withholding the interim dividend and timing delays in capital projects, which all offset the higher interest costs.

A final dividend of 280c a share (2023: 299.3c a share) was declared in-line with the dividend policy being 75% of the distributable income from the SA and EE portfolios.

In the year under review, Hyprop acquired Table Bay Mall for R1.68 billion, and the centre is trading well as it is being integrated into the portfolio. Since year-end, the Group has signed binding legal agreements to dispose of its sub-Saharan Africa (SSA) portfolio (centres in Nigeria and Ghana) to Lango Real Estate Limited, in exchange for Lango shares. This will free Hyprop’s management to focus on the core portfolios in SA and EE.

Over the past five years, a number of steps have been taken to reinforce Hyprop’s balance sheet. The loan to value (LTV) ratio was maintained at 36.4% in June 2024, despite the debt-funded acquisition of Table Bay Mall and impairment of the SSA portfolio in line with the sale transaction. At end-June 2024, Hyprop was in a strong liquidity position, with R803 million of cash and R2 billion of available bank facilities. At present, 80% of the interest rate exposure is hedged.

SA portfolio
Despite a challenging domestic economic environment, the Group’s nine centres (four in the Western Cape and five in Gauteng), achieved higher tenant turnover, foot count and trading density. The overall rent reversion rate improved to positive 5.8% compared to negative 7% a year ago.

Canal Walk opened 20 new stores in the past year. Somerset Mall launched a new Checkers FreshX and upgraded Pick n Pay Hypermarket, while a key project to improve the food journey supporting Ster-Kinekor was completed. Somerset Mall is in the midst of a two-year expansion project which will add 5 400m² of GLA. Rosebank Mall is benefiting from an improved tenant mix, reporting a 10.9% increase in tenants’ turnover and 8.5% growth in foot count. Woodlands opened three new drive-thrus for Steers, Burger King and Chicken Licken, The Fun Company and W Cellar (as part of the Woolworths extension project).

At Hyde Park Corner, the renovation of the north office block and The Forum is progressing well. Workshop 17 and The Forum will open in October 2024 and Workshop 17’s offices are expected to have a positive impact on the centre’s trading.

The independent valuation of the South Africa property portfolio was R25.4 billion in June 2024 (2023: R23.03 billion). The revaluation includes the costs of acquiring Table Bay Mall and shows the result of higher net operating income.

EE portfolio
The EE properties delivered excellent results, as they benefited from wage escalations in Europe as well as lower inflation and electricity prices across the region. European team continued to optimise the tenant mix and invest in projects and upgrades to maintain the centres’ dominant market positions. Across the portfolio, trading density rose by 8.9% year-on-year and retail vacancies at period end were 0.1%, an improvement from 0.3% a year earlier.

The Mall in Bulgaria completed a new staircase link from the centre into the new food court, which should improve the performance of the food tenants. Despite new legislation in Croatia that limits trading hours, City Center one East grew tenant turnover by 10.9% and trading density by 11%. City Center one West’s tenants’ turnover increased by 11.4% and trading density by 12.2%. Skopje City Mall enjoyed its most successful year since opening, with tenant’s turnover up by 7.5% and trading density by 8% compared with 2023. This year, a project will be completed to centralise all the ATMs and upgrade the Cineplexx complex.

The valuation of the EE portfolio increased from €574.7 million (R11.8 billion) in June 2023 to €610 million (R11.9 billion) in June 2024.

SSA portfolio
Weak economic conditions in West Africa, particularly in Nigeria, affected the trading performance of the centres, as did the marked depreciation of local currencies against the dollar.
Ikeja City Mall in Nigeria has welcomed four new tenants, which reduces its vacancy rate to below 1% at present from 2.1% at end-June 2024. In Ghana, replacement tenants were secured for the space vacated by Game in December 2022: ten-year leases have been signed by Melcom and Decathlon in all three of the centres.
The transaction to dispose of the portfolio to Lango is expected to be completed before 31 December 2024.

Other significant developments
Hyprop spent R81 million on energy projects in the year, including the installation of solar PV at Woodlands, Rosebank Mall and Clearwater Mall, but excluding Table Bay Mall. This year, work will begin on installing new solar PV at The Glen and CapeGate. Various projects to conserve water are underway, and the installation of potable water storage at several centres is about to commence. The Group has also spent R21.7 million on various initiatives to minimise waste and increase recycling.
Outlook
“More positive sentiment is evident in businesses, consumers and retailers in South Africa as a result of the formation of the Government of National Unity and more stable electricity supply. Globally, interest rate cuts are anticipated from the US Federal Reserve, which should encourage the South African Reserve Bank to cut rates also, giving much-needed relief to consumers, in turn having a positive impact on our operations” says Wilken.

Hyprop anticipates that it will achieve a 4-7% increase in distributable income a share for the year to 30 June 2025 compared with 2024. This increase is conditional on, among other factors, contractual rental escalations and market-related lease renewals, no further deterioration in South African electricity supply or the economy, and no other regional or global disruptions.

Vukile’s Spanish subsidiary completes €254 million refinance

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Vukile Property Fund (JSE: VKE), the leading specialist retail real estate investment trust (REIT), has confirmed that its 99.5% held Spanish subsidiary, Castellana Properties, has signed a €254 million financing agreement with Aareal Bank A.G.. The five-year agreement is supported by Banco Santander and BBVA, further diversifying Castellana’s sources of funding.

The milestone funding agreement has successfully refinanced the loan associated with the El Faro, Bahía Sur, Los Arcos, and Vallsur assets, and will continue financing active asset management and repositioning projects across various assets, thereby increasing the portfolio value.

As part of the transaction, €50 million of the previous debt has been repaid, reducing Castellana’s leverage and improving its Net Loan to Value (Net LTV) from 39%, as reported in their last financial results, to 34%. This transaction also extends Castellana’s average debt maturity from 2.7 years to 5.1 years compared to the figures in their most recent financial results. Additionally, the loan has been fixed for three years, improving Castellana’s interest rate hedge ratio to over 90%.

Laurence Rapp, CEO of Vukile, comments, “We are pleased to report that Castellana has further strengthened its financial capacity as it continues to grow, add value and reinforce the dominance of its portfolio.”

Vukile is a leader in convenient, community-focused, needs-based retail centres. It owns 32 urban, commuter, township, and rural malls in South Africa, its Castellana portfolio of 15 shopping centres in Spain, and three shopping centres in Portugal that Vukile recently agreed to acquire in a milestone transaction expected to close on 1 October 2024. After this acquisition, around 64% of Vukile’s assets will be located in the Iberian Peninsula, and almost 56% of its property net operating income will be in Euros.

Rapp confirms that Vukile remains dedicated to its strategy in South Africa and the Iberian Peninsula. “Robust financial capacity enables us to pursue suitable opportunities that are strategically aligned and financially accretive.”

 

Spear REIT successful equity capital raise of R 457 million

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Cape Town, 17 September 2024: Spear, a Real Estate Investment Trust (REIT) focused on investing in real estate within the Western Cape region, has announced the successful completion of an equity capital raise of R 457,75 million via a vendor consideration placement. This announcement follows the recent unconditional status of the acquisition of the Emira Western Cape portfolio, adding further impetus to its Western Cape-only-focused growth strategy.

The vendor consideration placement will allow the issuance of 50,302,197 new shares to public shareholders at an issue price of R9.10 per share. This equity placement was completed at a 1% discount to Spear’s 30-day VWAP, (volume-weighted average price), being R9.19 per share before 13 September 2024. The listing and issuance of the new shares are expected to commence at 09:00 on Monday, 23 September, 2024.

Spear REIT CEO Quintin Rossi affirmed, “Spear has remained laser-focused on building a high-quality, regionally centred real estate portfolio that consistently generates sustainable cashflows and profitability. The proceeds of Spear’s vendor consideration placement will be put to work to generate a mission-statement-aligned return for all stakeholders after the implementation of the new portfolio acquisition along with seeking out attractive portfolio growth opportunities within the region.” The Western Cape has stood out as the most desirable real estate investment and development market in South Africa as Provincial and Municipal investment fundamentals outpace the balance of South Africa, resulting in improved economic activity, boding well for real estate valuations and rates of return.

Spear is on the cusp of implementing its R 1,146 billion acquisition of a 13-asset Western Cape-only portfolio from the Emira Property Fund, which will see its assets under ownership increase to R 5,3 billion on the implementation date. The acquired assets constitute a diversified portfolio of 93 500m2 comprising high-quality industrial, medical retail and commercial offices in attractive and well-established Cape Town nodes. Following the new portfolio acquisition, management will continue to seek incremental investment and development opportunities, while also exploring diversified portfolio options within the Western Cape, that are in line with its investment strategy.

The proceeds of the vendor consideration placement will be utilised to settle short-term debt obligations and replenish the revolving credit facility emanating from the Category 1 transaction once implemented.

Spear’s loan-to-value following the vendor consideration placement and the implementation of the new portfolio acquisition by the end of October 2024 will be between 33% and 34%. Beyond the transfer date of the new portfolio acquisition Spear’s strong balance sheet will provide sufficient headroom for transactional opportunities for management to act as and when the need arises.

Spear’s regionally focused operating strategy and the fact that it is a fully internally managed REIT allow for focused asset management opportunities to be unlocked across its current portfolio assets and its acquisition and development pipeline.

Management remains optimistic that its growth strategy through acquisitions and developments, including a clear and implementable renewable energy and water continuity strategy, will enable Spear to grow its portfolio value in an income-accretive manner within the Western Cape towards becoming a meaningful mid-cap SA REIT.

Spear recently held its pre-close presentation for HY2025 which showed its consistent Western Cape performance, a contraction in vacancies thanks to strong leasing momentum, and positive rental reversion rates on a portfolio level.

Spear will announce its HY2025 operational and financial results for the six months ending August 2024 on 24 October 2024 at 11:00 via an in-person presentation in Cape Town and a live stream via the company’s YouTube channel.

Growthpoint reports strong group-wide operational performance

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Growthpoint reports strong group-wide operational performance with signs of the property cycle turning positive

Growthpoint Properties Limited (JSE: GRT) achieved robust operational results across its local and international investments for the 30 June 2024 financial year, with reports strong group-wide operational performance an improved contribution from Capital & Regional (C&R), and steadily improving property metrics from its stable South African portfolio. The strong operational performance has, however, been overshadowed by the negative impact of higher interest rates, lower dividends from Globalworth Real Estate Investments (GWI) and reduced profit from the South African trading and development division, leaving distributable income down 10% in line with guidance provided to the market.

Norbert Sasse, Group CEO of Growthpoint Properties, comments, “The improvement in our domestic portfolio’s property fundamentals and the strong operational performance of our international investments, indicate that we may have passed the lowest point of the curve and are now seeing signs of improvement. We successfully progressed the company’s strategic initiatives in a year that was as tough as ever but ended with brighter prospects on the horizon.”

Sasse notes that post-election, there is a more bullish feeling overall. “There is undoubtedly a greater sense of positivity, which has resulted in a rise in foreign investment in SA bonds and equities and will become more evident in the property sector as higher interest rates start working their way out of debt-servicing costs.”

Sasse adds, “Interest rates are anticipated to come down, and the effect of this is likely to start showing in our business from the second half of FY25. Nevertheless, the ongoing refinancing of interest rate swaps and cross-currency interest rate swaps at significantly higher rates continues to remain a challenge for earnings growth.”

In line with this, the solid operational performances produced by Growthpoint’s direct and indirect investments in FY24, remained overshadowed by higher interest rates globally. Growthpoint will distribute a total dividend per share (DPS) of 117.1cps, 10% down from the prior year, based on a payout ratio of 82.5%. Total property assets decreased by 2.8% to R174.7bn at year end..

Growthpoint’s diversified portfolio and income streams position it defensively for FY25. The improvement in its domestic portfolio’s property fundamentals and the strong fundamentals of its international investments indicate the bottom of the property cycle. It is, however, important to recognise that the ongoing impact of high interest rates, both locally and domestically, remains a challenge for distributable income per share (DIPS) growth in FY25, which is expected to decline by 2% to 5%. As Growthpoint assesses interest rate expectations across its investment geographies, it is evident that there are positive indicators supporting its outlook for FY26 when Growthpoint expects positive DIPS growth to resume.

Growthpoint’s group SA REIT loan-to-value (LTV) ratio was 42.3% (FY23: 40.1%), impacted mainly by an increase in Growthpoint Properties Australia’s (GOZ) LTV as a result of valuation write-downs. It recorded an interest cover ratio (ICR) of 2.4 times (FY23: 2.9 times). Growthpoint enjoys excellent access to funding and secured attractive margins during the period. Even so, it was not immune to the impact of high interest rates and significant refinancing of cross-currency interest rate swaps resulted in higher interest rates than those on expiry. 78.9% of its SA debt book is fixed for an average term of 1.9 years at a rate that moved up from 9.1% to 9.6%, or from 6.7% to 7.2% if you include cross-currency interest rate swaps and foreign-denominated debt. Net SA finance costs increased by R381.0m from FY23, and its weighted average term of debt increased from 3.5 years to 4.0 years.

“We believe LTVs, linked to valuations, are stabilising, other than possibly for GOZ where interest rates are lagging. We will, however, continue to focus on strategic initiatives to preserve liquidity and balance sheet strength in the long term. This supports us in achieving our key goals of enhancing the quality of the SA portfolio and optimising our international investments,” says Sasse.

Growthpoint remains well capitalised with significant access to liquidity, with R465.9m cash on its SA balance sheet and R6.3bn in SA unutilised committed debt facilities, with both numbers including Growthpoint Investment Partners. It will retain a further R842.3m from its 82.5% payout ratio. Growthpoint has a modest R2.8bn of debt maturing in the next 12 months, and the outlook for both its Fitch global scale rating at BB+ and national scale rating at AAA(zaf) and Moody’s global scale rating at Ba2 and national scale rating at Aa1.za, remain stable.

Growthpoint continued optimising its international investment, with 42.1% of property assets by book value located offshore and 32.4% of DIPS earned offshore. Foreign currency income remained steady at R1.6bn.

Growthpoint owns 57 office and industrial properties in Australia valued at R54.7bn through a 63.7% shareholding in GOZ and six community shopping centres in the UK valued at R9.2bn through a 68.9% investment in LSE- and JSE-listed C&R. Through its 29.5% investment in LSE AIM-listed GWI, Growthpoint owns an interest in 59 office and mixed-use properties in Poland and Romania with its effective share valued at R15.1bn. Growthpoint reinvested the June and December 2023 dividends received from C&R and GWI and invested in C&R’s open offer for the acquisition of Gyle Shopping Centre in Edinburgh.

“GOZ remains a core investment for Growthpoint, and we continue to evaluate all options to maximise the value of our investments in C&R and GWI,” says Sasse.

The excellent operational performance that distinguishes GOZ continued. It recorded successful leasing, supporting a portfolio occupancy of 97% by gross lettable area, of which 80% is leased to the government, listed and large organisations. It continues to have a long weighted average lease expiry of 5.7 years.

GOZ’s balance sheet is robust. Its gearing, although up from 37.2%, remains within its target range at 40.7%, driven by higher interest rates that saw GOZ’s portfolio valuation decline for the office and industrial sector by 11.2% and 1.8%, respectively, on a like-for-like basis over 12 months, with the total portfolio valued at AUD4.4bn at FY24. GOZ extended AUD470.0m of bank facilities in FY24. 74.5% of its debt is fixed for an average term of 2.5 years at a rate of 3.4%, and it has AUD293.0m of undrawn debt facilities.

With a slightly increased payout ratio from 79.4% in FY23 to 80.7%, GOZ’s DPS decreased from AUD21.4cps for FY23 to AUD19.3cps for FY24, while its funds from operations (FFO) per share declined by 10.8% to AUD23.9cps for FY24 from AUD26.8cps in the prior year. This is principally due to the material once-off lease cancellation fees received in the prior period, the disposal of two assets and higher interest rates.

“While GOZ still plans to grow its funds management platform, conditions were not conducive to furthering this growth during the year. The headwinds GOZ faced in FY24 have not yet fully subsided, and it has provided FY25 FFO guidance of AUD 22.3cps to AUD 23.1cps and distribution guidance of AUD 18.2cps,” confirms Sasse.

C&R’s community-focused, value-driven, needs-based retail strategy has driven a period of robust operational performance. Net rental income growth of 17.4% mainly due to the acquisition of Gyle Shopping Centre. Like-for-like property valuations increased 0.6% and have been stable over the last three years. C&R achieved strong leasing results, with new leases signed at an average premium of 8.8% on previous rentals. Portfolio occupancy increased to 93.1% by GLA.

C&R increased its DPS to GBP5.8pps totalling R173.9m (FY23: 5.5pps or R103.6m). Their LTV ratio increased marginally from 42.0% at FY23 to 43.0%. C&R has an average debt maturity term of 3.6 years at an average cost of 4.25%, with 97.8% of debt fixed until September 2025 and 78% until at least January 2027.

“C&R is defensively positioned and expected to continue delivering a stable performance,” Sasse says.

GWI reduced vacancies to 13.8% from 14.5% at FY23, with impressive leasing outcomes underpinning a resilient operating performance. The disposal of its fully owned industrial portfolio was the main contributor to a 10.8% decrease in GWI’s portfolio value. GWI has low gearing of 39.9%, EUR210.3m of cash on hand and EUR187.0m of undrawn debt facilities.

Given the significant refinancing of its Eurobond during the year, at 6.25% versus 3.0%, GWI’s DPS reduced 27.6% to EUR21.0cps totalling R304.0m (FY23: EUR29.0cps or R395.4m)

“GWI has bedded down its bond refinance, which places the company more firmly on the front foot, with liquidity to pursue opportunities in the market,” notes Sasse.

In South Africa, Growthpoint owns and manages a diversified core portfolio of 345 retail, office, and logistics and industrial properties. It also owns nine trading and development properties. Its continuous drive to elevate the quality of this portfolio includes investing in its core assets to protect and enhance value through active asset management initiatives, and developing new high-quality assets, refurbishing existing assets, disposing of non-core assets, and enhancing sustainability initiatives across all three sectors.

Growthpoint continued to invest in the portfolio with upgrades and new developments of R2.1bn. It sold 17 non-strategic properties for R907.7m during the year and two trading and development properties for R294.3m with a combined profit on book value of R24.4m. It intends to sell a further R2.8bn of assets in FY25. In total, Growthpoint has sold 161 properties for R12.4bn since 1 July 2016. It also continued to recycle capital from the sale of smaller, non-core properties into developing and redeveloping quality assets.

With almost all key numbers improving, the SA business delivered an admirable operational performance. Overall, vacancies improved with excellent letting, reducing from 9.7% to 8.7% over the year. Even office occupancies made a noteworthy recovery. Rental renewal growth demonstrated an equally encouraging trend, moving from -12.9% to -6.0% over the same period. Likewise, its renewal success increased from 64.9% to 76.3%. Bad debts and arrears reduced dramatically and are reverting to long-term trends.

The SA valuations, with a portfolio value of R66.3bn (FY23:R64.1bn) at FY24, were positively impacted by the improved property metrics across all three sectors and reduced vacancies in the office and retail sectors coupled with the repositioning of the portfolio to higher-quality assets by way of disposals and developments.

Growthpoint’s Cape Town and KwaZulu-Natal portfolios are performing particularly well, where all three sectors are nearing full occupancy. This is a good sign for positive rental reversions, as both markets are becoming more competitive.

Growthpoint’s total expense ratio for its SA business increased to 36.7% (FY23: 35.9%), primarily driven by disposals, above-inflation hikes in municipal rates and taxes, and rising utilities costs. On a positive note, with less loadshedding in 2024 so far, diesel spend reduced from R140.0m in FY23 to R112.6m in FY24, and diesel cost recoveries as a percentage of recoverable diesel spend was 82.0%.

The SA logistics and industrial portfolio is well-let despite a few challenging vacancies and has benefited from ongoing leasing success. Like-for-like net property income (NPI) grew by 2.6%. Renewal success increased considerably from 59.1% to 78.3%, and renewal rental growth moved up from -10.4% to -3.3%.

Overall, this sector is distinguished by relatively better property dynamics, supporting new developments. During the year it completed the speculative development of 15 units totalling 63,017sqm across Cape Town, KZN and Gauteng, all of which have experienced good leasing uptake. It also completed two client-driven developments in Gauteng, including a 28,375sqm logistics warehouse in Isando.

The SA retail property portfolio like-for-like NPI increased substantially, swinging positive from -1.7% for FY23 to +4.1% for FY24, and the portfolio value increased by 0.9%. Its core vacancy remained low, at 4.0%. Growthpoint’s retail portfolio continued to benefit from refurbishments and extensions at several malls, and strong trading density growth of 4.1% (FY23:6.2%) with the Western Cape outperforming at 5.7%.

In addition to the upgrades and extensions at River Square and Vaal Mall completed during the year, Growthpoint is set to finish the major redevelopment of Bayside Mall in November 2024. Its upgrade of Beacon Bay Retail, including a 3,100sqm expansion incorporating Builders Express, is scheduled for completion in June 2025. The Longbeach Mall extension for its 2,300sqm Builders Express will be ready in November 2025.

The office sector continued to recover as people returned to offices, and Growthpoint’s SA office property portfolio showed a welcome increase in value of 1.2% after printing a 0.9% decline in the prior year’s value. Vacancies were reduced yet again across all nodes, improving from 19.2% to 15.1% at FY24. Sandton, which represents 22.2% of Growthpoint’s office portfolio, showed a particularly notable change for the better, with vacancies reducing by around 33,000sqm during the period, taking the node’s vacancy rate from 28.7% at FY23 to a much improved 20.1% at FY24. Like-for-like NPI for this sector continued to firm, moving from -1.9% for FY23 to -1.0% for FY24. Similarly, renewal growth also improved significantly from -20.1% to -14.8%.

Growthpoint has two demand-driven developments underway in its office portfolio. It has initiated a net-zero carbon redevelopment at 36 Hans Strydom in Cape Town for Ninety One, who will occupy the building on a 15-year lease once completed in July 2025. Additionally, in response to tourism and hospitality demand in the Western Cape, Growthpoint is developing the 154-room Hilton Canopy Hotel in its Longkloof mixed-use precinct, set to open in December 2024.

Continuing to invest in the quality of its SA portfolio, Growthpoint has committed R1.5bn to furthering this in FY25. Growthpoint’s in-house trading and development division develops assets for its own balance sheet, earns development fees from external projects and profits from the sale of trading and development assets, and development projects for Growthpoint Investment Partners. This year the division earned R42.2m of trading profits, R9.8m of development fees and R25.4m of net property income.

The division was active with third-party trading and development projects, selling out its first major residential development, Kent residential apartments in La Lucia, Umhlanga, and a small community shopping centre in KZN. Additionally, its Riverwoods office-to-residential conversion in Bedfordview, is 80% sold, with proceeds expected in FY25. It also delivered two student accommodation properties, Horizon Heights and Fountains View, for the 2024 academic year. The team is currently working on The Crescent Studios (previously The Podium) and Arteria­ Parktown (33 Princess of Wales).

Growthpoint is committed to excellent environmental, social, and governance (ESG) performance and has made significant strides toward its carbon-neutral 2050 target. As part of its strong environmental actions, Growthpoint has installed 40.7MWp of solar power and has 123 green building certifications. Additionally, it signed a milestone Power Purchase Agreement (PPA) for renewable energy, securing 195GWh of green power, equating to 32% of its FY23 energy consumption. Its recently announced e-co2 solution provides tenants with renewable electricity at fixed escalations. Further, reducing water and waste intensity is a priority for FY25.

Growthpoint retains its Level 1 BEE status and continues to invest in successful corporate social initiatives, most notably the Property Point enterprise development programme. Due to its positive impact, this project has been widely adopted across the sector and become an industry-wide initiative.

“The stable and improving metrics from our SA business are encouraging, and we will continue improving the quality of this portfolio, including its sustainability, by championing renewable energy and similar solutions that support environmental and social stewardship,” says Sasse.

The iconic V&A Waterfront, Cape Town, in which Growthpoint has a 50% interest with its share of property assets valued at R11.5bn, delivered stellar results, with exceptional performances from its retail, hospitality and attraction sectors, driven by tourism. This strong position was bolstered by the completion of new developments, negligible vacancies at just 0.3% across the precinct, and strong demand supporting rental levels. The new Union Castle building is fully let, anchored by Marble restaurant and a flagship Nike store, and will open in time for the festive season.

The V&A’s like-for-like NPI, which includes a growing portion of operating income, increased by 13.4%. “The V&A expects mid-single digit growth next year as it undertakes major upgrades. The extensive refurbishment of Table Bay Hotel will begin in February 2025, and it will relaunch as the InterContinental Table Bay Cape Town later in the year. The conversion and extension of an existing wing of the mall for international luxury brands is set to open in November 2025 has commenced, so normal trading in this area has paused for the project,” says Sasse.

Growthpoint Investment Partners continued to grow its assets under management (AUM) and fees. It ended the year with R18.0bn of AUM, growing towards its goal of R30bn of AUM by the end of FY27. Growthpoint’s capital-efficient alternative real estate co-investment platform includes three funds that are distinct from Growthpoint’s retail, office and logistics and industrial core assets. They are Growthpoint Healthcare Property Holdings, Growthpoint Student Accommodation Holdings, which operates under the Thrive Student Living brand, and Lango Real Estate with prime office and retail assets in Ghana, Nigeria and Zambia, and land in Angola and Nigeria.

“Overall, Growthpoint Investment Partners made a steady contribution to our earnings with mixed results for the dividends and management fees earned across its three funds. Management fees increased by 10.2%, while dividends dropped by 16.0%. Growthpoint Investment Partners is actively raising capital in the funds, which are increasingly enjoying opportunities for growth through both development and acquisition,” says Sasse.

“We have made gains in every area of opportunity available to us this year. Growthpoint is a strong, diversified business with talented employees, a solid financial foundation, and a clear strategy for delivering value to all stakeholders. We have much to look forward to,” says Sasse.

Vukile expands Iberian Peninsular exposure

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Vukile expands Iberian Peninsular exposure with EUR176 million shopping centre portfolio acquisition in Portugal.

Continuing Vukile Property Fund’s (JSE: VKE) Iberian expansion, its 99.5% held Spanish subsidiary, Castellana Properties, has agreed to acquire a high-quality, blue-chip-tenanted portfolio of three shopping centres in Portugal.

In a landmark transaction, Castellana will acquire the assets from a Harbert European Real Estate Fund subsidiary at an attractive initial yield of around 9%, which is expected to deliver a compelling cash-on-cash yield of some 10% in Euros.

Laurence Rapp, CEO of Vukile, comments, “We have clearly signalled our confidence in the Iberian Peninsula and the good opportunities it holds. We are thrilled to capitalise on this opportunity in Portugal, extending and complementing the strong platform that Castellana has already established in Spain.”

Rapp adds, “Building on our successes in Spain, Castellana’s robust and proven on-the-ground management capability make this expansion a natural progression. With a strong team, experienced in the Portuguese market, we are perfectly positioned for this next step.”

The Portuguese retail property portfolio includes two shopping centres in Lisbon and one in Porto, all with great retail fundamentals including dominant market positions, excellent locations, easy access, great visibility, attractive tenants and strong and loyal shopper bases.

Castellana is acquiring RioSul, a two-storey shopping centre in Seixal, southern Lisbon. Similarly, in the north of Lisbon, Castellana is acquiring Loures, also a two-storey shopping centre. Both feature an exceptional list of national tenants including Zara, Bershka, Pull&Bear, Stradivarius, Foot Locker and C&A, as well as various popular food offerings and a cinema multiplex. In both cases, the centres are tenanted by grocery anchor, Continente Hypermarket, which owns its own stores.

RioSul attracts an annual footfall of nearly 8 million consumers and achieves sales of around EUR98 million a year in a market where both the population and its spending power is growing. Loures is in a growth-node of Greater Lisbon and busy undergoing preparations to be integrated into a new metro station, set to open in 2026.

Castellana is also acquiring 8a Avinda, the only shopping centre in São João da Madeira, an industrial and manufacturing town south of Porto. Its strong tenant mix includes national brands Lefties, Bershka, Pull&Bear, Stradivarius, Cortefiel and C&A, together with a selection of well-loved food choices and a cinema multiplex. Similar to the Lisbon assets, the centre is shadow-anchored by Continente Hypermarket. 8a Avinda boasts an annual footfall of 6 million people, generating sales of around EUR58 million.

The assets will be held in a subsidiary, in which Castellana will have an 80% interest and RMB Investments & Advisory the remaining 20% interest.

Vukile is a leader in consumer-focused shopping centres. Its commitment to customers shines through in its convenient, community-focused, needs-based retail centres. It entered this transaction with an existing portfolio of 32 urban, commuter, township, and rural malls in South Africa and its Castellana portfolio of 15 shopping centres in Spain. With the three new shopping centres acquired in Portugal, post the transaction, around 64% of Vukile’s assets will be located in the Iberian Peninsula, and almost 56% of its property net operating income will be in Euros.

Rapp confirms that Vukile remains committed to its stated strategy in South Africa, Spain and now Portugal and continues to evaluate opportunities that are strategically aligned and financially accretive.

The transaction remains subject to the usual conditions precedent and is expected to close on 1 October 2024.