V&A back on global tourist map

Sector heavyweight Growthpoint Properties’ better-than-expected earnings recovery has been bolstered by an encouraging return of visitors to its crown jewel, the V&A Waterfront in Cape Town.

Growthpoint, the JSE’s largest SA-based property stock with a market cap of R45bn, last week reported an 8.4% increase in dividends to 128.4c a share for the 12 months to June. Analysts were expecting closer to 122c a share.    

Growthpoint’s resumption of dividend growth follows a dismal performance for the previous year when income payouts were slashed 19%.

That came on the back of millions in pandemic-related losses due to the rental relief given to struggling tenants across its sprawling SA, Australian, East European and UK real estate portfolio.

The latter is worth a combined R161bn, with a 56.5/43.5 split between SA and offshore.     

CEO Norbert Sasse singles out the V&A Waterfront, as well as exposure to the robust Australian  market, as two key contributors to the company’s improved results

Group CEO Norbert Sasse singles out the V&A Waterfront, as well as  exposure to the robust Australian real estate market via a 62.2% stake in Growthpoint Australia, as two key contributors to the company’s improved results.

Sasse says the “rapid rebound’’ at the V&A is particularly pleasing given that the precinct  took the hardest hit during the pandemic.

The property, which Growthpoint co-owns with the Public Investment Corp, is regarded as the single most valuable piece of real estate in Africa. It also used to be the most-visited live, work, shop, play and stay destination in the country.

That was until the pandemic hit in March 2020 and the annual flow of 26-million local and international tourists who shop, dine and stay at the V&A virtually dried up overnight. Lockdowns, curfews, alcohol bans and international travel restrictions translated into extensive losses, given the precinct’s large component of hotels, restaurants and curio shops that are heavily reliant on tourists.  

In fact, Growthpoint took a Covid-related smack of close to R900m at the V&A in 2020/2021. However, net property income generated by the V&A surged 52% year on year (for the full 12 months to June 2022). That represents a 93% recovery on pre-Covid levels. The precinct's value  recovered by about 3% over the same time.

Estienne de Klerk, who heads Growthpoint’s SA operations, says tourists have been back at the V&A since early this year after fears about Omicron late last year subsided.

Visitor numbers for the 12 months to June increased 32.2% y/y, bringing them to 80% of 2019 levels. De Klerk says that by June occupancies at the V&A’s hotels had recovered to 81% of 2019 levels, compared with less than 50% for  the broader Cape Town market. 

He notes retail sales at the V&A also improved “significantly’’ in the second quarter, pushing sales turnover 14% ahead of that recorded in the same pre-Covid period in 2019. Vacancies at the V&A are now down to a negligible 1.6% from 3% in June last year; for the rest of Growthpoint’s SA property portfolio the figure is  10.3% (11.6%). 

De Klerk says there’s been a sharp uptick in foreign visitors to the V&A in recent weeks, aided by the Rugby World Cup Sevens tournament hosted in Cape Town in early September. He expects a further rebound in international visitors over the coming months as more carriers resume or increase flights to the Mother City.  

For instance, Air Belgium plans to operate two additional flights a week to Cape Town over the summer, while Delta Air Lines is looking to introduce direct flights between Atlanta and Cape Town in November. Dutch airline KLM is also expected to increase its direct flights from Amsterdam to Cape Town this year.

We’re hoping for a bumper summer season — potentially the best ever

—  Estienne de Klerk 

The return of cruise travel should also  provide a further underpin for trading figures at the V&A from October. “We’ve had zero cruise ships dock at the V&A over the past two years. We’re expecting 180 to arrive in Cape Town between October and March,” De Klerk says.  “We’re hoping for a bumper summer season — potentially the best ever.’’

The problem is that outside the V&A, the rest of Growthpoint’s portfolio isn’t looking nearly as promising. SA’s struggling economy, municipal rate hikes,  load-shedding and further rises in interest rates are likely to continue to weigh on consumer and business confidence. That will slow the recovery in the rest of Growthpoint’s SA portfolio, especially its offices, where vacancies are running at 20.7%. The global macroeconomic outlook is equally dim as the Russia-Ukraine war rages on with no end in sight.

As such, Sasse expects “muted’’ growth in distributable earnings for the year to June 2023.

Still, most analysts have placed a buy recommendation on Growthpoint driven by perceptions that the stock is cheap at current levels of about  R13. That translates into a sizeable 40% discount to NAV. 

Ridwaan Loonat, senior property analyst at Nedbank CIB, says Growthpoint trades at an attractive forward dividend yield of 10.2% relative to a long-term average of 8.3%.

“The company offers investors exposure to a diverse portfolio of assets with a stable income stream.” Loonat says the speed at which the V&A has recovered, which highlights the “quality and resilience’’ of Growthpoint’s flagship SA asset, is particularly encouraging.   

Ann-Maree Tippoo, portfolio manager at Ninety One, says there is further recovery upside in the SA core portfolio as vacancies continue to improve in the retail and industrial sectors and the negative momentum in the office sector starts to slow.  

She expects the loan-to-value, now at 38%, to continue to trend lower due to prudent management of liquidity.

Tippoo notes the share price has only partially recovered since its March 2020 lows and, given its discount,  provides a “significant valuation buffer”. That should provide a degree of comfort to investors who want to cash in on the double-digit dividend yield now on offer.