Size mat­ters

Finweek English Edition - - Companies & Markets - JOAN MULLER

MAN­AGE­MENT ????? OF LISTED PROP­ERTY heavy­weight Growth­point has clearly made hay while the sun shines. The com­pany’s phe­nom­e­nal ex­pan­sion drive has seen the value of its real es­tate as­sets bal­loon from R100m seven years ago to a cur­rent stag­ger­ing R27bn. Its 2008 an­nual re­port shows in the fi­nan­cial year to end-June 2008 alone its port­fo­lio was bulked up by prop­erty ac­qui­si­tions and ex­pan­sions worth R3,4bn. That makes Growth­point’s port­fo­lio al­most three times the size of SA’s next big­gest listed real es­tate fund (Pang­bourne), with phys­i­cal prop­er­ties worth R11,5bn.

But it’s un­likely it will be able to main­tain the same level of growth into the fu­ture. It’s be­com­ing in­creas­ingly dif­fi­cult and ex­pen­sive to du­pli­cate large, qual­ity as­sets such as those al­ready owned by Growth­point, par­tic­u­larly its re­gional shop­ping cen­tres, which in­clude Brook­lyn Mall (Pre­to­ria), La Lu­cia Mall (Dur­ban), North­gate (Jo­han­nes­burg) and Wa­ter­fall Mall (Rusten­burg).

Man­age­ment will no doubt also be more cau­tious of bring­ing new of­fice de­vel­op­ments to the mar­ket. The re­port reads: “There are a num­ber of new of­fice de­vel­op­ments that will be brought on to the mar­ket in the next year. It is ex­pected that will cre­ate a short-term in­crease in of­fice va­can­cies and limit the abil­ity to in­crease of­fice rentals sub­stan­tially in cer­tain nodes in the short term.”

Other fac­tors that will make it more dif­fi­cult to add new stock to its port­fo­lio in­clude de­lays in zon­ing pro­cesses, un­avail­abil­ity of elec­tric­ity for large new users, high and rapidly in­creas­ing build­ing costs and the high cost of debt fund­ing.

“At the cur­rent cost of bring­ing new de­vel­op­ments on to the mar­ket, de­vel­op­ers will have to achieve rentals of roughly dou­ble the cur­rent in-force rentals in Growth­point’s port­fo­lio.”

Nev­er­the­less, it’s ex­pected to con­tinue to grow in­come streams at dou­ble-digit rates over the near term. Man­age­ment de­clared bet­ter-than-ex­pected growth in dis­tri­bu­tions of 14,4% for the year to end-June.


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