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SA economy puts the brakes on property acquisitions

Prompting Redefine and Growthpoint to focus on developments.
Property companies find value in developments rather than acquisitions.

It will be difficult for property companies to replicate their rousing deal-making over the past five years, as slow local growth curbs their appetite for new deals. 

As a result companies on the JSE’s R400 billion plus real estate sector are shifting focus from large-scale acquisitions to battening down the hatches.

You don’t have to look far for reasons behind this: SA’s faltering economy is expected to grow at less than 2% this year, and there are challenges in finding reasonably priced potential deals in the local market.  

Redefine Properties is the latest to attest to this after a year of what CEO Andrew Konig described as “transformative” acquisition deals.

The heavyweight’s notable deals include its merger with Fountainhead Property Trust which has been four years in the making. Redefine also acquired a portfolio of 14 commercial property assets valued at R4.1 billion from Leaf Property Fund.

As a result of acquisitions, Redefine, the second-largest real estate investment trust (Reit) on the JSE, grew its property assets by R13.4 billion to R64.5 billion for the 12 months to August. Said Konig: “At this point in time, we cannot see many opportunities for us in SA given the type of assets we are looking to acquire.”

Because of this Redefine will focus on developments rather than acquisitions; among the projects is its flagship development of the 33 000 square metres office building for Webber Wentzel, located at 90 Rivonia Road in Sandton. Other developments include the R400 million extension of the 75 766 square metres Centurion Mall in Pretoria. 

Despite its shift in focus, the Redefine management has done a good job at positioning the business and property portfolio, the sector head for property at Investec Asset Management, Peter Clark said.  “Going forward the business needs to focus on strong management of the existing portfolio to generate returns for its investors.”

Growthpoint Properties

Similarly, the largest Reit Growthpoint Properties is finding value in developments rather than acquisitions.  After the takeover of Acucap Properties and Sycom Property Fund by Growthpoint, its assets which include a 50% stake in the V&A Waterfront in Cape Town grew to R100 billion.  “It’s fair to say that the dynamics right now in SA are not conducive to necessarily buying a lot. We already have got significant scale in the market,” CEO Norbert Sasse said at the company’s annual results presentation in August. 

The next 12 months for Growthpoint will be used to optimise its property portfolio by focusing on refurbishments to properties and developments. One of its developments, in partnership with property developer Zenprop, is the 87 000 square metres head office for Discovery in Sandton.

With the local economy contracting it will also be difficult for property counters to deliver above-inflation dividend growth.  Already Growthpoint expects dividend growth to slow to between 5% to 6% – below the 7.5% it declared for the 12 months to June.  Similarly Redefine expects to moderate its dividend growth from  7.3% this year to between 6% to 7% for next year. Clark says Redefine’s dividend guidance is lower than some niche companies in the sector and reflects the tough trading environment.


As a result Redefine and Growthpoint are looking at growing their offshore footprint. Redefine has a 30.1% interest in UK-domiciled Redefine International, a 50% direct interest in Northpoint, a mixed-use building in Australia and a 25.6% in Australian Stock Exchange (ASX)-listed Cromwell Property Group. It also acquired a German retail property portfolio with Redefine International. Redefine’s international investments represent 17.3% of its total property assets, which Konig would like to grow up to 25%. “But there are no fixed commitments at this point in time,” he says.

Growthpoint, which has a 65% stake in ASX-listed Growthpoint Australia, might grow its investments further in Australia and the African continent.

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