Growthpoint Properties: Glass half empty on SA

Counter sees more strain in the domestic property market.
Growthpoint CEO Norbert Sasse.

The ability to consistently post inflation-beating dividend payouts to income-chasing investors is no easy feat, as seen in Growthpoint Properties’ bearish outlook on SA’s property market.

Growthpoint, which has been long favoured by property punters for delivering attractive dividends, declared a 6% dividend growth for the six months to December 31 2015. 

The last time the sector heavyweight posted a dividend growth of this kind was in 2011 at the height of the global financial crisis.

Growthpoint’s full-year 2016 dividend guidance is likely to be about 6% – lower than its 8% to 9% historic guidance. The downgrade in the dividend growth might be the new normal for Growthpoint in a few years to come.

CEO Norbert Sasse attributes the downgrade to SA’s tough economic conditions and the time it took to conclude the company’s R18.6 billion takeover of Acucap Properties’ and Sycom Property Fund’s property portfolio. 

“There are too many headwinds in the SA market. The property market is under pressure given the economy. The demand for property is under pressure and rentals are not growing as much,” says Sasse.

Growthpoint is the latest counter to offer a sober outlook on the domestic property market, echoing the concerns raised by its counterpart Redefine Properties and many others. 

Growthpoint, which owns Cape Town’s V&A Waterfront together with the Public Investment Corporation, manages property assets worth R110 billion made up of 531 retail, office and industrial properties.  

Meago Asset Managers director Thabo Ramushu says the V&A Waterfront is a star performer in Growthpoint’s portfolio. “Retail and hotel occupancies benefit from increasing foreign tourism. The V&A hotels trade at premium levels compared to similar offerings in the CBD,” Ramushu tells Moneyweb.

Across its property portfolio, Growthpoint saw a decrease in its vacancies from 6.4% a year earlier to 4.9% and renewed 69% of its leases. Grindrod Asset Management chief investment officer Ian Anderson describes Growthpoint’s results as good, despite the below-average distribution growth.

“The management team have done a great job on the rest of the SA portfolio against a deteriorating economic backdrop,” says Anderson.

Growthpoint is keen to invest in SA but the current market dynamics do not make property investments attractive.  Underscoring this is the fact that the cost of funding is much higher than the yield of properties.

“Physical property yields are trading at up to 8% while the five-year cost of debt is well over 9%. To go and borrow money at 9.5% and buy properties at 8%, you are pretty much making a loss from day one,” he says.

Europe’s property market has piqued Growthpoint’s interest. But it might consider acquisitions “only if the right opportunity came along and presented itself.”

It currently owns a 65% stake in Australian Stock Exchange-listed Growthpoint Australia, which is part of its offshore strategy and continues to benefit from the weakness of the rand against major currencies.

Ramushu says Growthpoint Australia continues to trade well but acquisitions are hard to come by in a highly competitive environment. He adds that this will curb portfolio growth going forward.

“Growthpoint remains prudent but risks being too conservative relative to other large-cap property stocks that are expanding aggressively offshore,” he says.

Counters that have recently made offshore moves include Redefine Properties, which acquired a 75% stake in Poland-based Echo Prime Properties; Tower Property Fund, which bought properties in Croatia; Vukile Property Fund acquired a 21% stake in UK-focused Atlantic Leaf Properties; Attacq bought malls in Serbia; and Texton Property Fund buying properties in the UK.




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