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.