Tough times: Growthpoint worries over dividend yield
“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.