Judging by the 4% drop in Growthpoint Properties’ share price last week after it posted its annual results, the market is disappointed by the rather uninspiring earnings growth guidance of 1%–3% issued by the real estate heavyweight for the year ahead.
With a market cap touching R55bn, Growthpoint is the largest South Africa-based property stock on the JSE and is widely regarded as a bellwether for the broader real estate market. Its sprawling portfolio of shopping centres, offices and industrial buildings is worth a colossal R160bn and spans South Africa (64.4% of assets, including 50% of the V&A Waterfront), Australia (22.8%), Eastern Europe (11%) and the rest of Africa (1.8%).
Analysts were expecting the real estate investment trust (Reit) to continue its steady recovery towards inflation-beating earnings growth. After a prolonged period of underperformance, management has made impressive headway over the past two years in selling noncore assets and returning to sector-linked growth. Last year the Reit lifted its dividend payout ratio from 82.5% to 87.5%, suggesting it was on track to enter a more sustainable earnings growth period, an expectation that supported the 60% rally in Growthpoint’s share price over the past 2½ years.
V&A Waterfront still shining brightly
Growthpoint delivered solid increases of 4.3% and 7.4% in distributable income and dividend payouts, in line with the top end of its guidance for the year to June 30, buoyed by yet another sterling performance from the V&A Waterfront. But it was the outlook for financial 2027 that surprised on the downside.
As independent property analyst Keillen Ndlovu puts it: “The market didn’t expect Growthpoint to shoot the lights out, given the size and structure of its business. Still, the outlook of 1%–3% growth fell short of expectations.”
Mvula Seroto, portfolio manager and director at Catalyst Fund Managers, says Growthpoint’s subdued outlook comes at a time when many of its peers have adjusted their earnings growth forecasts upwards. “Growthpoint’s financial 2027 growth guidance … was below consensus and sits below the high-single-digit guidance issued by several of its South African peers.”
The rest of the sector’s “big five” counters have all pencilled in earnings growth of between 6.5% and 10% for financial 2026 or 2027: Redefine Properties comes in at 6.5%–7%, Vukile Properties at 8%–10%, Resilient Reit at 9% and Hyprop Investments at 7%–9%.
So why such a relatively lacklustre outlook for Growthpoint? Seroto ascribes it to a combination of dilutive asset disposals under the group’s recycling programme, an ex-growth offshore investment base, elevated refinancing costs associated with certain derivative instruments and one-off residential capital profits at the V&A Waterfront that inflated the financial 2026 base year.
Norbert Sasse, Growthpoint’s outgoing CEO, singles out disproportionately large exposure to the struggling Joburg office market as a key reason for the Reit’s low earnings growth guidance. Growthpoint is the biggest office landlord in South Africa, with a portfolio of 140 office buildings worth nearly R28bn, of which about 70% are in Gauteng. Tenant numbers in Joburg, and Sandton in particular, have dropped sharply in recent years due to the city’s infrastructure degradation, semigration and the adoption of work-from-home policies.
A limping office block performance
“Offices are still our Achilles heel,” Sasse says, despite the group having sold about R8.5bn worth of commercial buildings over the past decade and having reduced its exposure to the subsector from 46% to 39% of total assets. While Growthpoint’s overall office vacancy has dropped notably from a peak of close to 23% in 2022 to 14% in the year to June, Gauteng still lingers at about 18%, which Sasse ascribes to problematic pockets in Sandton, Midrand, Parktown and Bryanston. Sasse reckons Joburg’s office market is unlikely to see meaningful improvement unless the economy starts growing consistently by 2.5%–3% a year and the unemployment rate drops sharply.
Pointing to offshore assets, Sasse says Growthpoint Australia, which owns a portfolio of industrial and office properties, and Globalworth Real Estate Investments, which invests in offices and mixed-use precincts in Poland and Romania, posted decent operational results in the year to June. However, the stronger rand and currency conversions led to a year-on-year drop in income from both companies.
The question for investors is when and how Growthpoint will get back to sector-linked growth. Sasse says the Reit’s aggressive disposal programme, which targets R2bn–R3bn of property sales a year, means that income growth will remain under pressure as the disposals are likely to be earnings-dilutive in the short term despite creating longer-term value-unlock opportunities.
In addition, Australian interest rates are at 15-year highs, so it is tough to find growth in that country, he says.
Growthpoint’s 29.6% minority interest in London-listed Globalworth is also not ideal, as it does not allow it much influence in how the company can maximise value for shareholders.
But it’s not all doom and gloom. Sasse refers to the “enormous” amount of work that’s been done on disposals in the past two years, which has allowed the group to reduce its debt by about R10bn. As a result, the local loan-to-value ratio has dropped to what Sasse says is a “growth-enabling” 30.2%. “Our balance sheet is now by far in the best position it has been since the pandemic, creating accretive acquisition opportunities.” He adds that lower debt levels, combined with lower interest rates, have gone a long way towards reducing Growthpoint’s loan repayments.
Thank goodness for Cape Town
Performance metrics in the South African portfolio (bar the Gauteng office portfolio) continue to improve. Net income from the V&A, which is valued at R32.4bn and remains the jewel in Growthpoint’s crown, rose a hefty 21.6% for the year to June 30. The increase was boosted by the one-off profits from apartment sales at 5 Dock Road, the V&A’s latest residential development, which fetched record prices north of R100,000/m². Visitor numbers to the V&A grew 7% year on year to 27-million, which supported a 6.2% uplift in retail sales.
Sasse says Growthpoint continues to invest in income and capital growth opportunities at the V&A, with the City of Cape Town having approved an application to expand the precinct’s development rights by 440,000m², which translates into a R20bn pipeline. New projects already under way at the V&A include Marriott’s 142-room Edition Hotel, a 160-unit build-to-rent apartment development and The Bower, a 147-apartment life-rights retirement development.
Another big potential growth driver is Growthpoint’s strategic investment in the new Cape Winelands Airport near Durbanville, with construction likely to start in the second quarter of next year. Sasse says 350,000m² of development rights have been granted, with keen interest already received from about 2,500 prospective retail, office, hotel and industrial tenants. The airport, which is set to initially serve about 2.5-million passengers a year, is likely to open in late 2029.
Analysts, meanwhile, would like to see Growthpoint reduce its offshore exposure and reinvest the proceeds in South Africa. To better position the group for sustainable distributable income and NAV growth over the medium term, Seroto says, “we would encourage the new management team to consider reducing exposure to ex-growth offshore investments and associated unsustainable see-through gearing”. He believes capital recycling towards higher-growth domestic and V&A-linked opportunities, where management retains greater operational control, should be prioritised.
What’s Globalworth really worth?
Ndlovu says that while Growthpoint must be commended for its restructuring efforts, in particular the late-2024 sale of its loss-making stake in UK-based mall owner Capital & Regional (now known as NewRiver Reit), Globalworth “remains a thorn in the flesh and needs to be resolved soon”. Given that Globalworth’s share price has shed nearly 70% in the past five years, Ndlovu believes selling shares at the current steep discount to NAV would create a huge loss.
“A solution is to get everyone to agree to delist the company and to split the direct property portfolio among the major shareholders,” he says. “Everyone walks away with a directly owned portfolio of assets, providing Growthpoint with the flexibility, control and independence to sell the assets if need be.”
Garreth Elston, MD of Golden Section Capital, expresses a similar view, saying Growthpoint’s offshore interests need to be simplified sooner rather than later. “It needs fewer geographies, more focus and more control.” Elston says the risk is not that the Reit will have one weak year but that it will drift at a below-sector growth rate of 1%–3% for several years, which would entrench the roughly 20% discount to NAV at which Growthpoint is trading. He believes a more focused, domestically weighted portfolio is where Growthpoint needs to be heading.
