Tough times: Growth­point wor­ries over div­i­dend yield

Finweek English Edition - - IN THE NEWS - BY GLENDA WIL­LIAMS

“S outh Africa i s in a t ough s pace,” sa y s Nor­bert Sasse, CEO of Grow th­point Prop­er­ties Lim­ited. Yet, against the back­drop of a diff ic ult op­er­at­ing en­vi­ron­ment, SA’s largest real es­tate i nvest­ment t r ust ( REIT) posted healthy div­i­dend growth of 7.5% for the f inan­cial year to end June.

But the coun­try’s macros, neg­a­tive gear­ing, ris­ing va­can­cies, re­fi­nanc­ing of Acu­cap Prop­er­ties Lim­ited and Sy­com Prop­erty Fund debt, and in­creas­ing with­hold­ing tax are key rea­sons for the com­pany ex­pect­ing div­i­dend growth to be down around two per­cent­age points for the up­com­ing year. The out­look of 5% to 6% pos­i­tive dis­tri­bu­tion growth is ex­pected to come pri­mar­ily from re­de­vel­op­ment of ex­ist­ing prop­er­ties rather than ac­qui­si­tions.

This year’s growth, how­ever, was driven l argely by ac­qui­si­tions. For the f irst time, Growth­point’s an­nual dis­tri­bu­tions to share­hold­ers ex­ceeded R4bn for the year, which in­cluded an early R1bn pay­ment as part of the R18.6bn ac­qui­si­tion deal of the Acu­cap Prop­er­ties Lim­ited and Sy­com Prop­erty Fund port­fo­lios. But for t he early pay­ment, dis­tri­bu­tion growth would have been an even higher 8.4%, says Sasse.

No­tably, the com­pany has grown its as­sets to over R100bn, boast­ing 525 prop­er­ties – 53 of them off­shore – with net in­come up by 21.4%. Growth­point has also grown mar­ket cap to R71.7bn and in­creased staff num­bers by over 55% in the past t wo years. Off­shore in­vest­ment also grew with the ad­di­tion of R607m dur­ing the year into Growth­point Prop­er­ties Aus­tralia (GOZ).

Sig­nif­i­cant growth in its Aus­tralian sub­sidiary means the com­pany has lit­er­ally dou­bled the size of its in­vest­ment since 2010 with 15.5% of distributable in­come com­ing from Aus­tralia. The bulk of its distributable in­come – 75.8% – comes from the South African port­fo­lio, with a fur­ther 8.7% com­ing from the V& A Wa­ter­front through its 50% in­ter­est in the prop­er­ties.

But the tough op­er­at­ing en­vi­ron­ment is al­ready im­pact­ing va­can­cies, which have risen from 4.9% to 5.7% over­all.

The com­pany has an ac­qui­si­tion and de­vel­op­ment pipeline of R4.2bn, but com­ment­ing on fur­ther ac­qui­si­tions Sasse says: “The SA mar­ket is not con­ducive for us right now. We’ve got sig­nif­i­cant scale in the do­mes­tic mar­ket and there aren’t that many qual­ity op­por­tu­ni­ties left. And what’s left is fright­fully ex­pen­sive.” Add to this neg­a­tive gear­ing; bor­row­ing at 9.5% to get a 7.5% re­turn.

That doesn’t mean the com­pany will shy away from a vi­able qual­ity ac­qui­si­tion op­por­tu­nity, but look­ing for­ward Sasse says their strat­egy will be one of con­sol­i­dat­ing and op­ti­mis­ing the prop­er­ties they have. “We see bet­ter value in de­vel­op­ing new prod­uct on the back of pre-com­mit­ments and where we can get bet­ter yields of around 8.5% to 10%.” Much of that re­de­vel­op­ment will be down in the Western Cape with em­pha­sis on the Gate­way precinct of the V& A.

Like al­most ev­ery other prop­erty f und, Sasse says they are ex­plor­ing al­ter­na­tive mar­kets. “There is noth­ing right now which is hard and fast or in f inal ne­go­ti­a­tion but we have our eyes and ears open for op­por­tu­ni­ties out­side of SA that in­clude Africa and Europe. The key driver for us is di­ver­si­fy­ing into hard cur­rency mar­kets,” adds Sasse.

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