Key message: there were few surprises in Growthpoint’s FY22 results as most parts of its portfolio are showing stability, recovery and positive momentum, except for Globalworth and SA office investments which continue to lag. Current share price (down -22% YTD) and valuation (12.5% forward yield, 44% discount to NAV) is an attractive entry point but is affected by an uncertain macro picture.  

  • FY22 results met expectations: DEPS was 6c (+5.1% y/y) with a dividend of 128.4c per share (+8.4% y/y). NAV per share (SA REIT BPR) grew +6.7% y/y to ZAR21.58. Locally, the SA industrial portfolio stands out for its defensiveness (NPI +3.7% y/y lfl, vacancies down 370bps to 5.7%), while office continues to suffer worsening occupancy and deeply negative rental reversions. SA retail has benefitted from a post-COVID recovery but core lfl NPI growth disappointed at -3.7% y/y on negative reversions and stubborn vacancies. But we are encouraged by the performance of Growthpoint Australia (FFO per share +7.8% y/y), the outcome of restructuring and de-gearing initiatives at Capital & Regional (with dividend reinstated at GBP2.5p per share) and the resurgent turnaround of the V&A Waterfront. The balance sheet is in respectable shape with LTV at 37.9% (FY21: 40.0%) and 83.9% hedged; we highlight the relatively large unhedged portion of GOZ’s AUD debt (39%) as a detractor to FY23/24 earnings growth as interest rates rise.
  • Update to earnings forecasts: we revise our FY23 DEPS forecast to ZAR160.0c (+2.9% y/y); management is guiding for ‘muted’ growth. We assume an 85% payout ratio (FY22: 83%), which slightly enhances DPS growth to +5.9% y/y. We think there will be capacity to further increase the payout ratio to 90% from FY24 (we forecast DEPS 166.5c +4.1%, DPS 149.9c +10.2%).
  • Our revised target price is ZAR13.28, which implies a one-year forecast total return of 31.5% (12.5% income yield, 19.0% capital return). While the global macro environment remains highly uncertain, there is further risk to the downside; but we find that the recent selloff in Growthpoint (and SA listed property broadly) has created an attractive entry point with a wide margin of safety (14.5% FFO yield, 0.56x P/NAV) on a sufficient medium-term view.
  • Key catalysts and factors to watch: recovery of SA office market (especially Sandton); redemption of Eurobond; impact of rising interest rates on finance costs (GOZ unhedged debt); growth in funds management business to ZAR30bn AUM; status of Globalworth investment; upside potential from further V&A recovery (tourism-related).

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