GROWTH­POINT PROP­ER­TIES

Finweek English Edition - - COVER STORY -

R73bn R120.4bn Of­fice and re­tail SA, Aus­tralia, Ro­ma­nia 36.7% 80.5% (av­er­age term 3.5 years) 7.46% 2 sell, 2 hold (com­piled by IRESS) A JSE Top40 In­dex com­pany, Growth­point is the largest SA-based REIT and the 26th-largest com­pany on the JSE. It boasts 533 prop­er­ties, 473 in SA and 59 in Growth­point Prop­er­ties Aus­tralia (GOZ) via its 64.3% hold­ing.

Its strat­egy though has not changed post junk sta­tus. “We will look to op­ti­mise and im­prove our South African re­tail, of­fice and in­dus­trial prop­erty busi­nesses and con­tinue to grow and de­velop out the V&A [Water­front in Cape Town],” man­ag­ing direc­tor Esti­enne de Klerk tells fin­week.

Growth­point’s aim is also to grow dis­tributable in­come from in­ter­na­tional in­vest­ment (cur­rently 15.9%) to around 30% over the next five years.

The com­pany says it will sup­port the growth of GOZ – where, in the last re­port­ing pe­riod, it in­vested a fur­ther R1bn – as well as its new in­vest­ment in Glob­al­worth. The com­pany ex­panded its reach off­shore, in­vest­ing €186.4m (around R2.8bn) for a 26.9% stake in the €1bn prop­erty port­fo­lio of Glob­al­worth Real Es­tate In­vest­ment, the largest owner of of­fice space in Ro­ma­nia. Growth­point fore­casts €0.22 div­i­dend per share from Glob­al­worth for the 2017 fi­nan­cial year.

The com­pany has set its sights on build­ing a R15bn funds man­age­ment busi­ness over five years. De Klerk says the com­pany will de­velop and roll out its fund man­age­ment busi­ness with the launch of its Health­care fund and, with part­ner IAM, its African Prop­erty fund.

Moody’s too has SA un­der re­view for a down­grade and this has meant that the heavy­weight now also faces a down­grade re­view of its global scale rat­ings by the rat­ing agency.

“The rat­ing un­der re­view re­flects Growth­point’s op­er­a­tional con­cen­tra­tion in South Africa, with 75% prop­erty ex­po­sure and 84% of dis­tributable in­come de­rived from oper­a­tions within South Africa. This ex­poses the bulk of its oper­a­tions to the height­ened risks as­so­ci­ated with the op­er­a­tional en­vi­ron­ment in South Africa. As a re­sult Moody’s views Growth­point’s rat­ings as be­ing highly cor­re­lated with South Africa’s longterm bond rat­ing,” the rat­ing agency re­ported on 7 April. Given the greater un­cer­tainty sur­round­ing SA af­ter junk sta­tus, SA’s REITs might be more cir­cum­spect when it comes to mak­ing lo­cal ac­qui­si­tions and pur­su­ing their devel­op­ment pipe­lines in SA. Dis­posal pro­grammes too could be af­fected.

“In­ter­est rates will go up. Ac­qui­si­tions of prop­erty will be more dif­fi­cult be­cause it will be more ex­pen­sive to gear,” says Stevens.

“There will be some im­pact on funding costs be­cause bank funding base rates and spreads will rise. That means REIT funding base rates and mar­gins will be­come higher too,” says Emira Prop­erty Fund CEO Ge­off Jen­nett. “And, if there is a gen­eral tight­en­ing of credit con­di­tions, then po­ten­tial buy­ers will be af­fected, which will also slow down dis­posal pro­grammes.”

A down­grade means less money com­ing into the coun­try, and less money for spend­ing and cir­cu­lat­ing. It ex­erts even more pres­sure on an al­ready weak­en­ing eco­nomic en­vi­ron­ment that had al­ready be­gun to im­pact prop­erty sec­tors like re­tail, where trad­ing den­si­ties are down.

“While good and dom­i­nant as­sets con­tinue to do well and de­liver pos­i­tive rental growth, a weak­en­ing econ­omy has seen the lo­cal mar­ket be­com­ing ex­tremely com­pet­i­tive across most of the sec­tors, es­pe­cially of­fice and re­tail. This con­tin­ues to put pres­sure on rental growth. Va­can­cies are also in­creas­ing in the in­dus­trial space but they are not out of con­trol,” ex­plains Stan­lib’s Ndlovu.

Says Growth­point’s De Klerk: “A re­duc­tion in mar­ket con­fi­dence will re­sult in a fur­ther weak­en­ing of de­mand which in turn is neg­a­tive for rental lev­els.” He adds that a de­cline in re­tail spend is gen­er­ally bad for the econ­omy which the SA REITs trade in.

Junk sta­tus may also re­duce the South African REITs’ com­pet­i­tive­ness in the global mar­kets and could have a marked im­pact on their for­eign growth am­bi­tions.

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