If vaccination is slow, V&A Waterfront will keep reeling from Covid-19, says owner

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Growthpoint says odds will remain stacked against the V&A Waterfront if SA does not appear to have Covid-19 under control since its variant is perceived to be more infectious and deadlier.
Growthpoint says odds will remain stacked against the V&A Waterfront if SA does not appear to have Covid-19 under control since its variant is perceived to be more infectious and deadlier.
  • The owner of the V&A Waterfront says speedy Covid-19 vaccine rollout is crucial to the flagship tourist attraction's recovery.
  • Growthpoint Properties also says that the attraction was devastated by the harsher lockdown regulations introduced in December 2020.
  • Tenants in arrears are on the rise, despite millions of rental reliefs that the V&A Waterfront has provided since the beginning of the lockdown.

Growthpoint Properties says it expects this year to continue weighing on its flagship V&A Waterfront given the slow rollout of the Covid-19 vaccines in the country and the perception that the South African variant of the virus is "more deadly".

During the presentation of its financial results for the six months to 31 December, Growthpoint - which is SA's biggest listed landlord - said the number of tenants in arrears at the V&A Waterfront continues to climb and bad debts almost doubled between June and December 2020 from R6.8 million to R13.3 million.

Growthpoint owns a 50% stake in this iconic Cape Town tourist attraction.

The V&A Waterfront granted R91 million in rental relief to its tenants, many of whom had their businesses devastated because of their reliance on tourists. That was over and above the R161 million in rental discounts Growthpoint provided across its other properties in the six months to December.

Historically, the V&A Waterfront has always been a standout performer for Growthpoint. However, given its strong reliance on international and local tourism, it suffered disproportionately to the rest of Growthpoint's portfolio since the virus was first reported in SA.

Apart from the lack of international tourists, its situation was exacerbated by its high exposure to restaurants, jewellery stores, and hotels.

Speedy vaccination is crucial for the Waterfront's recovery

Given that its recovery is heavily dependent on the resumption of international tourism, Estienne de Klerk, SA CEO of Growthpoint Properties, said the quicker that countries where most of the tourists that visit SA come from vaccinate their populations, the quicker the confidence will return among travellers. However, SA also needs to move at a pace that will show that it has the situation at home under control.

"I think given the pace in which we are vaccinating, that confidence will take some time to come," said De Klerk.

Growthpoint Group CEO Norbert Sasse said the odds will remain stacked against the V&A if the country does not appear to have Covid-19 under control - since the SA variant is perceived to be more infectious and deadlier.

"Not that it's necessarily the case, but there are perceptions and international travellers are going to be more concerned about that. Unfortunately for us, there's also a talk of the third wave which could come in as early as April, and we won't make any real progress on vaccinations in South Africa prior to that time," he said.

Sasse said this "blurry" outlook made it difficult for Growthpoint to even provide any guidance on its earnings for 2021 at this stage.

De Klerk said if SA can get some confidence to return to the domestic tourism market,  that will help. At some point late in 2020, it looked like local tourism was on a rebound. The Waterfront started getting more bookings for its hotels, but then the harsher adjusted lockdown level 3 restrictions put harsh brakes on that confidence.

"I think that December would have been a much better season if it wasn't for the lockdown. That certainly hurt the V&A because they had reasonable bookings and some significant cancellations as a result of the lockdown," said De Klerk.

In the six months to December, the V&A Waterfront recorded a 48% reduction in its net property income to R179 million. Its contribution to Growthpoint's distributable earnings fell by R176 million.

"The Waterfront's numbers [are] essentially about half what they were in the comparable period," said Sasse.

While Growthpoint expects the tourist-reliant tenants of the Waterfront to continue being hammered by the existence of the virus in the short term, the landlord said some are doing well.

"Clothing retail is doing well. Funny enough, high-end fashion - the Guccis and the Louis Vuittons - are doing well. The food retailers are doing well," said Sasse.

The Waterfront holding on to its tenants

Still, vacancies at the Waterfront are considerably lower than the rest of Growthpoint's SA retail portfolio which stood at 5.4%at the end of December 2020. At the V&A Waterfront, vacancies increased from 1.5% in June 2020 to 2.3%.

Where Growthpoint is battling the most with the rising vacancies is in the office space where they climbed to 18%. It's also the portfolio that took the most pain in terms of falling property values with another R1.3 billion write-down in the six months to December.

"I think 18% is certainly the highest that we've seen in our careers in terms of vacancies when it comes to office," said De Klerk.

Growthpoint expects more pain to still come this year in the office space, both in terms of falling valuations and rising vacancies. But De Klerk said their office teams were confident that they will be able to stabilise this soon.

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