GROWTHPOINT PROPERTIES LIMITED - Investor Update for the three months ended 30 September 2020 - GRTI

            
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Investor Update for the three months ended 30 September 2020 - GRTI

GROWTHPOINT PROPERTIES LIMITED
(Incorporated with limited liability in the Republic of South Africa under registration number 1987/004988/06)
(Bond issuer code: GRTI)
(Growthpoint or the company)


INVESTOR UPDATE FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2020
We are pleased to present you with the FY21 first-quarter trading update for 1 July to 30 September 2020.

Our three stated strategic thrusts  internationalisation, new income streams from funds management and
third-party trading and development, and streamlining and optimising our RSA portfolio - remain relevant. Our
funds management strategy is particularly well positioned for growth in this market, with its capital efficient
structure.

Our priority in this environment is strengthening our balance sheet in the short term, which will enable
Growthpoint to continue pursuing these strategies in future. Thus, this update concentrates on the
developments within our South African business that have material impacts on our balance sheet. Our
international businesses, Growthpoint Properties Australia (GOZ), Globalworth Real Estate Investments (GWI)
and Capital & Regional (C&R) have all published their most recent market updates, and we ask that you also
read these documents.

As in almost every economic sector globally, the effects of the COVID-19 pandemic on our business and our
tenants are significant. It will take some time before anyone can accurately measure the full impact of the
pandemic and the restrictive and protective measures imposed to curb it.

Growthpoint has given a further R50.4m in discounts to tenants as well as an additional R19.3m in deferrals
while R66.2m of deferrals were recovered during the quarter. Highlighting the pressure that our tenants are
under, tenant arrears increased to R594.4m at end-September from R511.0m at end-June.

To provide the most transparent picture of our business during the COVID-19 crisis, we began publishing
monthly collections. Since year-end, we have revised our methodology of calculation to improve the accuracy
of our reporting going forward and as such the collections percentages for prior months have been restated
based on the new methodology.

RSA portfolio update

The South African macroeconomic environment was already under pressure before the COVI D-19 pandemic.
While some local business confidence has returned during the quarter from all-time low levels, market
uncertainty and the absence of a clear positive catalyst for economic improvement has placed pressure on all
property fundamentals and the key performance indicators (KPIs) in our South African business.



                                                                            KPIs as of 30 September 2020

                                                                                                                                            Trade &                             Total as of 30 June
                                                                                Retail         Office       Industrial     Healthcare       Development          Total                 2020

Vacancy                                                                          5.80%          17.84%          8.62%           -                 -              10.63%                9.50%

Renewal success rate                                                            83.52%          68.58%         58.10%           -                 -              65.00%               66.40%

Weighted average renewal growth rate: 1 July 2020 - 30 September 2020          -11.55%         -13.19%        -13.32%           -                 -             -12.90%               -6.70%

Rolling 12-month renewal growth to 30 September 2020                            -6.87%         -10.62%         -7.88%           -                 -              -8.60%

Quarterly build-up of FY20 weighted average renewal growth                      -6.20%          -8.90%         -4.70%          5.30%              -              -6.70%

Weighted average renewal growth rate: 1 July 2019 - 30 September 2019           -8.20%         -11.00%         -5.90%          3.30%              -              -8.00%

Weighted average renewal growth rate: 1 October 2019 - 31 December 2020         -4.50%          -1.80%         -0.20%          0.00%              -              -3.30%

Weighted average renewal growth rate: 1 January 2020 - 31 March 2020            -4.30%         -12.50%         -5.90%          7.20%              -              -8.70%

Weighted average renewal growth rate: 1 April 2020 - 30 June 2020               -8.10%          -9.90%         -4.40%          0.00%              -              -7.50%

Weighted average renewal lease period                                        3.95 years      6.39 years     3.29 years          -                 -              4.5 years            3.7 years

Weighted average future escalations on renewals                                  8.25%           7.18%          7.52%           -                 -               7.50%                7.00%

Total arrears                                                              274,769,285     171,673,591    117,908,954     28,979,646         1,049,215         594,380,691          510,967,503

Arrears                                                                    270,779,528     129,642,411     98,335,911        123,446         1,014,257         499,895,553          369,565,181

Deferrals not yet recovered                                                  3,989,756      42,031,180     19,573,043     28,856,200            34,958          94,485,137          141,402,322

Collections for the month of September 2020                                      96.4%           99.8%          98.3%          99.7%            99.7%              98.2%              111.9%*

Collections: January 2020 - March 2020                                          100.0%           99.9%          98.6%         100.0%            97.4%              99.7%

Billings: January 2020 - March 2020                                       1,186,465,549   1,199,060,327   558,135,941     85,245,082         29,930,695      3,058,837,594

Collections: April 2020 - June 2020                                              81.4%           94.7%          91.9%          99.9%           104.7%              89.5%

Billings: April 2020 - June 2020                                           885,133,344    1,021,067,873   466,909,941     48,124,551        15,164,693       2,436,400,402

Collections: July 2020 - September 2020                                          93.6%           96.7%          95.0%          99.9%            98.8%              95.3%

Billings: July 2020 - September 2020                                      1,055,214,609   1,060,894,549   559,642,522     67,219,890        16,424,821       2,759,396,391

COVID-19 rental discounts granted: 1 July 2020 - 30 September 2020          37,501,567       8,899,551      4,009,087          -                   -            50,410,205          277,994,083

COVID-19 net rental deferrals: 1 July 2020 - 30 September 2020                (119,801)    (24,493,510)   (26,437,991)     4,099,160            34,958         (46,917,185)         141,402,322

COVID-19 rental deferrals granted: 1 July 2020 - 30 September 2020           1,347,464       5,260,764      8,487,425      4,112,063            40,883          19,248,599          158,793,447

COVID-19 rental deferrals recovered: 1 July 2020 - 30 September 2020        (1,467,265)    (29,754,274)   (34,925,417)       (22,903)           (5,925)        (66,175,784)         (17,391,125)


*84% per FY20 results presentation



Office

Many tenants are waiting to assess the effects of the pandemic before committing to office space, resulting in
low new letting levels of 11 731m in the first three months of FY21.

We achieved a renewal success rate of 68.58% with 74 996m of the 109 352m of leases expiring in the period
being renewed. Making a meaningful contribution to this accomplishment, we signed a 10-year lease with Absa
for nearly 35 000m across three buildings. Supporting sustainable income streams, we have ex tended leas e
periods. The weighted average renewal lease term increased from 3.8 years at the start of the quarter to 6.39
years at its close, based only on the renewals in the first quarter. Absas lease was the main driver of the
significantly longer weighted average lease period for the portfolio this quarter, and this number is higher than
it is likely to be for the balance of the financial year. Even so, lease lengths are clearly trending longer in the
portfolio.

Longer lease periods, however, are being attained at the expense of renewal rental growth. When measured in
the first quarter this KPI is always distorted by a small sample of leases, it tends to level out over the financial
year as more leases are renewed, as seen in the quarterly build-up of the FY20 weighted average renewal
growth in the table above. At end-September it was -13.19%. We have also provided a 12-month rolling
renewal growth figure for this quarter. With an oversupply of space in the market and pressure on occupancy
levels, rental renewal growth will inevitably face continued pressure across the entire sector. Tenant
retention remains our focus.

Non-renewals added 34 000m of vacancy of which 7 000m relates to renewals with reduced space
requirements. Leases terminated over some 16 500m of space, added to the vacancy.

We are being approached for early renewals with longer leases in exchange for reduced rentals or s pace and
are assessing each case on its merits. Some large tenants who wish to give up space are offering cancellation
fees. These discussions will invariably increase vacancies.

Retail

All of our retailers were open and trading by the end of the quarter, with restaurants, cinemas and gyms still
subject to certain operational restrictions. Value fashion, electronics and the home and decor retail categories
are outperforming all others in our portfolio, showing that shoppers prioritise value during difficult times and
reflecting the unprecedented amount of time spent at home during the pandemic. Ladies fashion, workwear
and occasional wear continue to lag last years sale levels. Cinemas, coffee shops and restaurants will take
longer to recover.

The 83.52% renewal success rate was achieved by renewing 39 658m of the 47 481m that expired in the
period.

Weighted average future escalations on renewals increased from 6.3% to 8.25% during the quarter. Again, this
reflects a trade-off of longer lease terms and higher rental escalations for lower renewal rental growth.

Renewals were concluded at a weighted average renewal growth of -11.55% in an extremely competitive and
challenging context, clouded by uncertainty and poor retail performance. Retailers are focusing on cost
containment and reduction and using rentals and escalations as tools to achieve this, resulting in downward
pressure on rental levels at lease expiry and, in a few extreme cases, mid-lease. Consequently, the weighted
average rental renewal growth on expiry continued to move backward.

Edcon arrears accounted for R73.46m at end-September compared with R45m at 1 July 2020. We have
successfully let 80 000m of our total 89 000m exposure to the new purchasers of the Edcon brands.

Industrial

Most of our industrial tenants operate in the manufacturing, construction, mining, trade and transport sectors,
which were subject to negative GDP growth ranging from 76.6% to 67.6% this quarter. These businesses are,
understandably, re-evaluating their strategies and cutting costs to remain sustainable. Unfortunately, some
have already succumbed to the combined effects of the pandemic lockdown and an ailing economy, and
liquidated or gone into business rescue. The consequences impacted the entire sector and can be seen, to
some extent, in our KPIs.

Leases over 185 600m of industrial space expired during the quarter, of which 107 826m , or 58.10%, was
renewed with a weighted average renewal growth rate of -13.32%. Economic pressures resulted in industrial
vacancies across South Africa spiking, leading to a drop in average market rentals. Industrial businesses are
striving to capitalise on tenant-friendly market conditions and are seeking more favourable lease terms, and
landlords are acquiescing in order to minimise their property holding costs.

Overall industrial vacancies moved from 7.1% to 8.6% during the quarter. The lowest vacancy levels are in
Durban (6.5%) followed by Cape Town (8.1%) and the Johannesburg region (9.7%).

V&A Waterfront

We are pleased to report that visitors to the V&A Waterfront increased significantly during the quarter, with
the footfall over weekends reaching around 65% of normal levels and some 60% during the week . T here is a
direct correlation between footfall and retail sales. Opening South Africas borders to international travel was
a welcome development, but the V&As major markets remain on the red list with restricted entry to the
country. The lack of international tourism continues to have a material impact on the hospitality and tourism
sector in South Africa, which is impacting the V&As hotels, high-end retail stores, restaurants, tourism-
focused retailers, leisure and attractions. The robust office sector at the Waterfront advantageously includes a
high percentage of blue-chip tenants, however, their slow return to the office means lower footfalls during the
week.

Only nine of the roughly 450 retail stores have not yet re-opened, including five restaurants, three high-end
jewellers, and one tourist-focused store. The Watershed, which has around 150 tenants who sell unique items
and arts and crafts, is now open four days a week, from Thursday to Sunday.

The V&A has 13 hotels, of which 10 are partially open, with plans for one more to welcome guests before the
end of the year. The remaining two hotels should open when international travel restrictions ease further.

Gross revenue for the quarter was 41% below the same period in 2019, driven by a 53% drop in retail and
hospitality. The V&As low combined vacancy level edged up slightly to 2%, mostly due to some increased
retail vacancy, not counting the ex-Edgars premises redevelopment. Gross arrears increased to R 235m at the
end of September 2020 compared to R222m as of 30 June 2020. Both amounts exclude the provision made for
discounts. As of 30 June 2020 the provision for discounts was R101m, R28m was subsequently released and a
further provision of R48m was made in the quarter, bringing total provisions for discounts to R121m.

During the three months, total discounts to the value of R113m were processed while rental deferments of
R11.3m were granted during this period.

Retail

    .     Retail sales for September amounted to R278m, or 62% of sales in September 2019, largely due to
          decreased jewellery, curio and restaurant trade.
    .     Of the total R113m of discounts processed and total R48m of additional discounts provided for during
          the quarter, R84m and R25m respectively related to the retail sector.
    .     Footfall for July to September was down 52% from the same quarter in 2019.
    .     Footfall is currently averaging about 25 000 people per day during the week, rising to around 50 000
          visitors per day over weekends.


Offices

    .     Vacancies remain relatively low at 2.5% of gross lettable area.
    .     Of the total R113m of discounts processed and R48m of additional discounts provided for during the
          quarter, R3m and R9m respectively related to the office sector.
    .     The portfolio has stabilised, with minimal further rental relief being granted.
    .   Enquiries for office space have slowly started to increase, but asking-rentals remain under pressure.
        The focus is on tenant retention.
    .   Major office tenants are slowly returning to their workplaces.


Hotels and residential

    .   Residential vacancies increased but have stabilised at levels slightly above normal.
    .   Of the total R113m of discounts processed and total R48m of additional discounts provided for during
        the quarter, R21m and R6m respectively related to hotel tenants.
    .   Hotels that are open are operating at very low occupancies and will continue to do so until
        international travel restrictions are lifted.


Marine and industrial

    .   Industrial tenants performed well in the circumstances, but the demand for charter boat cruises and
        helicopter trips remains low.
    .   Of the total R113m of discounts processed and total R48m of additional discounts provided for during
        the quarter, R5m and R8m respectively related to the marine and industrial sector
    .   The cruise industry is still closed with no indication as to when international cruises will resume, but
        this is unlikely to occur in 2020. MSC has confirmed some domestic cruises planned for January 2021.


Funds management

Growthpoint Healthcare Property Holdings (GHPH)

GHPH continues to build a good pipeline of both development and non-development projects. The Cintocare
Head & Neck Hospital is now operational with some of the doctors moving their practices to the hospital and
its first patients already having been admitted. The transfer of the hospital to the fund is expected in February
2021.

All tenants are currently paying rent as per lease arrangements and where deferrals were provided, the fund
has started to collect those too.

The transaction with the IFC for a US$80m equity and convertible debt package is in the final stages of
negotiations.

Growthpoint Investec Africa properties (GIAP)

GIAP completed the further acquisition of a minority shareholding in the Wings Office Complex in Lagos,
Nigeria, in August 2020 bringing its total assets under management to c.US$659m.

Having deployed all its equity to achieve significant growth, GIAP is now in discussions with potential new
investors and is likely to launch a second fundraising, for new and existing investors, in early 2021.

GIAPs loan-to-value ratio remains stable, and the business is currently restructuring its entire debt finance
portfolio more efficiently. The management company also aims to introduce a B-BBEE partner in 2021.

GIAPs NAV per share has increased 6% for its half-year at end-September 2020, and this period should mark its
maiden distribution, payable to shareholders by 31 December 2020. With the current liquidity and currency
convertibility issues in Nigeria, GIAP is considering either making its distribution in s hares or adjusting the
distribution amount accordingly.

Recent unrest in Nigeria led to the widespread destruction of property, particularly in Lagos. Circle Mall,
which represents some 3% of GIAPs asset value and NAV, was among the many assets damaged and looted. I t
is comprehensively insured and we are assessing the damage, but the mall will be unable to operate until
reinstated.

To date, GIAP has provided total rental concessions and deferrals of US$2.8m to support businesses through
the COVID-19 crisis, mostly to smaller retail tenants. These provisions are tapering off significantly as footfall
and turnover metrics begin to rebound.

Treasury and capital management

After our refinancing and new funding initiatives pre-June 2020, there have been no major changes in the
funding book. Total nominal debt at the end of September was R42.6bn. The South African debt capital market
seems to be settling and there have been a few public auctions, however the majority of activity is on a
privately placed basis. Fund managers remain selective in their approach, showing an appetite for better-
quality credit.

At the end of September and October respectively, cash and unutilised facilities totalled R4.7bn and R5.4bn.

Growthpoints credit rating from Moodys remains at Ba1, with a negative outlook. The national scale rating is
Aa1.za. Moodys is scheduled to provide an update on South Africas sovereign rating on 20 November 2020.

The weighted average term of the liabilities was 3.4 years at the close of the quarter. Growthpoints weighted
average interest rate was 8.0% (8.2% FY20). Including cross-currency interest rate swaps (CCIRS) and foreign -
denominated loans, it decreases to 5.7% (5.9% FY20). A total of 82.3% of our interest rate book was hedged for
a weighted average term of 3.1 years.

Dividends from our offshore investments are well hedged considering the quantum of dividends we expect to
receive is less than originally anticipated due to the impact of COVID-19.

Conclusion

While the South African context remains extremely tough, the diversified nature of our business and the
geographies in which we operate have been buffers for us. Our Australian and Eastern European investments in
particular are performing better given GOZ has no exposure to retail assets , GWIs retail exposure is
negligible, and both benefit from very strong tenancies. However C&R, our pure retail investment in the
United Kingdom, is dealing with the countrys second hard lockdown, expected to last for four week s until 2
December, during which only retailers selling essential goods may open and we expect the UK retail
environment to remain extremely challenging in the short term.

We remain focused on balance sheet strength in this environment and, as previously signalled to the market,
we are considering all the alternatives available to us.

Growthpoint will release its HY21 results on Wednesday, 10 March 2021, and, given the fluidity of the
operating environment, we have elected not to provide market guidance for distributable income or dividends.


Johannesburg
11 November 2020

Debt Sponsor
Absa Bank Limited (acting through its Corporate and Investment Bank division)

Date: 11-11-2020 05:47:00
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