South Africa: Growthpoint Signals Turnaround in JSE Listed Property Sector
Growthpoint Properties Limited published its financial results for 2021 on the 15th of September 2022.
The real estate investment trust (REIT) is the largest such listed entity on the Johannesburg Stock Exchange and is reliable indicator for the sector as a whole. The real estate sector in South Africa as in the rest of the world was one of the biggest casualties of the COVID pandemic. REITs on the JSE were not spared.
The COVID pandemic created a perfect storm for property owners in South Africa. When COVID spread to the rest of the world after beginning in Wuhan in China in 2019 two things happened that adversely affected the REIT sector on the JSE including Growthpoint.
Growthpoint Properties Limited which is the largest REIT listed on the JSE announced its results on the 15th of September 2022.
Results for the REIT reflected an improved operating environment for companies operating in the real estate space in South Africa and those listed on the JSE.
Real estate generally and JSE listed REITs specifically were adversely affected by the COVID pandemic and the resulting lockdown which constrained their ability to generate income.
Global capital markets experienced an unprecedented sell off as investors exited equities into safe haven investments to preserve value. The sell off resulted in shares of companies' world over falling to record lows. The REIT sector in the JSE was already subdued by years of poor macroeconomic fundamentals in the South African economy. The REIT sector was further battered by the sell off.
Growthpoint Properties reached its all-time high share price of ZAR 32 or US$ 1.83 around February 2018. The share price since then continued to slide and was dealt a mortal blow by the massive global sell-off. Growthpoint shares and those of other JSE listed REITs tumbled. Growthpoint shares at their lowest hovered around ZAR 10 or US 57c. The company's shares trade at around ZAR 13 currently. The second development that undermined the property sector as a whole was the lockdown. The lockdown prompted the closure of businesses and began an era of working from home.
The lockdown drove the realization home that most companies did not need to lease as much office or real estate space as they had done in the past prior to the onset of the pandemic. The closure of businesses meant that revenues for property companies drastically reduced. The reduced income was compounded further by the legislation in some countries and South Africa especially of rental concessions to tenants by landlords. This meant that property owners could not take any form of recourse against tenants who had not or could not pay any rentals for the spaces that they occupy or occupied. Now for all accounting readers, this situation is a highly frustrating situation for managers of businesses. Whenever a customer is in arrears over an obligation that they incur in a business transaction, the longer into the future that this obligation goes unsettled, the less likely it will be settled at all.
This article originally appeared on The Exchange
Photo: GrowthPoint Properties