Growthpoint has a diversified property portfolio comprising 424 properties in South Africa, 37 properties in Australia and a 50 percent stake in the properties of the V & A Waterfront in Cape Town. Its total property value including Australia is R45.7billion rand, with retail valued at R12.0billion, office portfolio R13.7billion, industrial portfolio R6.8billion, the V&A Waterfront R4.8billion and Australia R8.4billion (AUD1.16billion).
Its top retail portfolio by value includes among others, Brooklyn Mall in Pretoria, La Lucia Mall in La Lucia, Northgate in Johannesburg, Walmer Park Shopping centre in Port Elizabeth, Woodmead in Sandton, Golden Acre in Cape Town and River Square Shopping Centre in Vereeniging. There are other properties also. A major highlight for Growthpoint is the 50 percent acquisition of the iconic V& A Waterfront property for R4.9billion. Growthpoint and the Government Employees Pension Fund (GEPF) represented by the Public Investment Corporation Ltd bought the property in equal proportions and took transfer in June 2011.
When Norbert Sasse was approached to run Growthpoint Properties shortly after 2001, he did not jump at the offer.
“Property as an asset class before 2001 was a swear word,” he explains. But a vision that property would have its time in the sun propelled him into the property space.
It was a leap of faith that paid off. Today Norbert Sasse, Group CEO of Growthpoint Properties, heads up South Africa’s largest, and most liquid, listed property company.
Under his leadership, the property portfolio has grown from R120m to R127.7bn, and its market cap from R30m to about R80bn (see sidebar).
The South African portfolio is still the largest chunk of business, comprising about 70% of total property assets, and contributing 73.4% to earnings before interest and tax (ebit).
Five years back Growthpoint could only boast of a South African portfolio. In total, the real estate investment trust’s (REIT’s) portfolio now comprises 559 property assets, 463 of them in South Africa.
It also owns 56 properties in Australia through its investment in ASX-listed Growthpoint Properties Australia (GOZ) and 39 properties in Romania and Poland, via investment in LSE AIM-listed Globalworth Investments (GWI).
Growthpoint, though, is focused on growing that international footprint. Over the next three years it aims to increase its offshore exposure from the current 24% to 30% and also push offshore income – currently 19.6% – to that same number.
That will require an additional investment of R10bn centred around increasing exposure in Australia and Central Eastern Europe (CEE).
That key internationalisation strategy has brought with it a tailoring of the executive structure.
In March this year, former Growthpoint Properties MD Estienne de Klerk was appointed CEO of Growthpoint SA, allowing Sasse to focus primarily on the offshore strategy and other strategies, like the company’s funds management business.
Growthpoint’s interest in Globalworth, now 29%, is likely to stay at that in the short term, says Sasse. But recent investments, like its €150m investment into GPRE (a Globalworth component), means earnings contribution is likely to rise from the current 3.2%.
“Globalworth is producing really good growth through a combination of ability to acquire assets at 7% to 8% yield, together with a low 3% cost of debt,” says Sasse.
Unlike the many SA REITs that have ventured into the CEE region, Growthpoint’s strategy for that region is different in that the focus is on industrial and office, not retail.
“There are already five other South African companies chasing retail in that region. We think retail is expensive and overtraded. Much of the investment case for retail is driven by the future expectation of massive retail spend growth, which will feed the rental growth. We don’t necessarily share that same opinion,” Sasse tells finweek.
“But the [low] funding, positive yield spread, and substance to those markets and economies in the CEE, which are growing at 3.5% to 4%, speaks to real demand for office and industrial space.
“Globalworth’s office assets would stand proudly alongside anything we have here in Sandton. Tenants are global S&P 500 multinational companies all signing 10-year leases and expanding by thousands of square metres every year. And there is no doubt that logistics is a huge opportunity. Poland as a regional hub is very well-positioned.”
Adding another leg to the business comes with aspirations to have exposure in Western Europe, potentially in regions like the UK and Germany, within the next three to five years, says Sasse.
On 18 July, Growthpoint also became the first property company to have a secondary listing on the A2X – SA’s newest exchange – while also retaining its primary listing on the JSE. A second trading platform benefits shareholders and stockbrokers by providing an additional venue to transact with lower costs, says Sasse.
Fund management strategy
The May launch of Growthpoint’s African fund (a joint venture with Investec Asset Management) and the healthcare fund launch in June, introduces new low-risk revenue streams from funds management.
The Growthpoint Investec African Properties (GIAP) fund, which aims to invest in income-producing commercial assets in select African cities, has secured capital commitments in excess of $212m.
“The longer-term strategy is to get to $750m-odd of equity and ultimately list on a recognised exchange because we are targeting global investors,” Sasse tells finweek.
African investment is a “measured approach”, says Sasse of Growthpoint’s $50m commitment to the fund. The strategy here is to invest selectively and to attract capital commitment from third parties.
Growthpoint Healthcare Property Holdings launched in June with a R2.4bn portfolio and five private healthcare assets. The new property holding vehicle invests exclusively in healthcare assets in South Africa.
The local front
The local operating environment remains difficult and uncertain, and unsurprisingly local disposals are in the crosshairs. Around 5% of Growthpoint’s SA portfolio, representing a mix of assets, is up for grabs. Apart from the recycling of matured assets, the disposals will allow the company to pursue its offshore strategy and finance offshore acquisitions.
The sale could realise around R6bn for the offshore investment pot and has attracted 23 offers.
“Sentiment, briefly exuberant following Cyril Ramaphosa’s election as president, is now more cautious as realism hits home about how hard it is going to be to change the country’s trajectory.
“Uncertainty around the land debate and other core policies like the Mining Charter do not assist private sector investment or foreign direct investment. Core policies and certainty need to be in place before money is mobilised.”