CEO Norbert Sasse says that while gross property revenue was up by 10,2% to R3,54bn, expenses were up 14,2% to R867m — and 60% of this increase was attributable to municipal rates.

Growthpoint’s vacancy rate of 6,4% overall looks modest, but in its office portfolio the vacancy is 9%, with floor space about the size of Sandton City available to let.

But at least arrears on the office portfolio fell, from R11m to R9,3m.

Growthpoint was forced to rethink its philosophy that bigger is better. It sold seven properties for R657m during the year, a R55m profit on book value.

In contrast, the retail portfolio is getting stronger. Vacancies at the top 10 centres fell from 1,4% to 1,1%. Growthpoint’s centres are not the megamalls, they are in the 35000m²-56000m² range and include the Brooklyn Mall in Pretoria, La Lucia Mall north of Durban and Constantia Village south of Cape Town. Sasse says, however, that national retail sales are expected to remain subdued and tenants are being squeezed by rates and electricity costs.

It would be an ideal time for a longterm investor such as Growthpoint to buy more retail centres: it bought out the 13% in Benoni’s Lakeside Mall it did not already own but other acquisition opportunities have been scarce.

“The anticipated distressed selling of quality property has not materialised,” says Sasse.

The sharpest rise in vacancies was in industrial property, where they increased from 3,7% to 5,8%. But Sasse argues that manufacturing output is rising and the recovery is being led by the motor industry. Vacancies have stabilised though they are not yet falling. But arrears will to have to be managed carefully in the new financial year. They were up 25% to R11,4m in the 12 months to June.

Growthpoint made a major diversification last year with the purchase of majority control of Australian property fund Orchard. It is a very simple, in some ways boring, business, with 25 industrial properties.

Emira, another SA property fund, has taken a 6,2% stake in Orchard, now renamed Growthpoint Properties Australia (GOZ). This is, as for Growthpoint, Emira’s first international acquisition.

Emira MD James Templeton says he likes the fact that GOZ is a clean business that earns all its income from rental and none from ancillary activities. He also has a high degree of confidence in Growthpoint, which he describes as trustworthy and the best operator in SA.

Emira will follow its rights in an issue now taking place to pay for the A171m acquisition of Property Solutions Group in Brisbane, Queensland. This will diversify GOZ into the office sector.

Emira has been a conservative business, with limited appetite for acquisitions. Templeton says that just redeveloping its own assets will enable income to grow by between 5% and 10% a year. In the year to June, its distributions increased by 6,8%.

He says that even though Emira is becoming a more proactive fund, it will remain one of the more conservative portfolios. It might not be as aggressive and entrepreneurial as some of the other shares, but he expects the income growth received by shareholders will be more consistent.