Growthpoint Properties makes a Romania foray

Market watchers expected a sizable offshore deal from the sector heavyweight.

In line with peers that have concluded deals in Central and Eastern Europe with aplomb this year, sector heavyweight Growthpoint Properties has followed suit, acquiring a 26.9% stake in Romania-focused Globalworth Real Estate Investment.

This marks Growthpoint’s foray into Romania in a deal worth €186.4 million, or R2.8 billion in rand terms at the time of writing.

Globalworth is listed on the London Alternative Investment Market and owns a €962.4 million (R14.3 billion) portfolio of office and industrial properties, a residential complex and on-going developments in Bucharest, the capital of Romania.

Globalworth is believed by Growthpoint to be the largest owner of office properties in Romania. Growthpoint’s stake will increase to 27.6% by December 31 as Globalworth will issue the property counter with more shares.

The deal will give Growthpoint hard-currency earnings, yield-enhancing property investments and access to further opportunities in Central and Eastern European (CEE) real estate markets.

Growthpoint initially took a cautious approach to concluding deals in CEE regions while its South African-listed property peers bought properties in regions such as Poland, Romania, Czech Republic, Slovakia and Serbia.

But the company changed its position given the worrying state of the SA economy that is making it difficult for property companies to eke out growth and deliver above-inflation dividend growth.

As Growthpoint CEO Norbert Sasse recently put it: “We were quite sceptical of the Eastern Europe story and having done a bit of homework, there is merit in having a closer look.”

The race to CEE regions has heated among South African property counters in recent months, with big spender Redefine Properties investing R4 billion in a portfolio of 18 properties in Poland valued at €1.2 billion (R17.8 billion).

Other big-ticket deals include blue-chip mall owner Hyprop Investments’ R2 billion-worth acquisition of a 60% stake in two in malls, Delta City in Serbia and Delta City Podgorica in Montenegro; and small-cap Tower Property Fund’s acquisition of an office tower and shopping malls in Croatia.

The deals have increased SA listed properties earrings derived from offshore markets to 37% mainly from CEE regions, the UK and Australia, latest figures from Stanlib’s head of listed property funds Keillen Ndlovu shows. Ten years ago the sector had no offshore exposure.

The big draw-card for South African property companies in CEE regions is that acquisition yields on properties are typically higher (6.5% to 8.5%) than debt funding costs (2.5% to 3%), which instantly boosts dividend payouts in year one. In SA, debt funding costs are higher than acquisition yields.

Sasse says the economic growth of CEE regions (expected to exceed 3% over the next five years), skilled and cost-effective labour markets and long-term leases that can be achieved on properties, makes investments in the region compelling.

Market watchers have recently noted that Growthpoint was behind the curve in seeking opportunities in highly competitive CEE regions and will need to play catch-up.

Arguably, a big deal was necessary to move the needle for a juggernaut property company like Growthpoint with property assets worth R112.5 billion as of June 30.

The Globalworth deal will boost its offshore exposure beyond its Australia venture, as it owns a 65.5% stake in Growthpoint Properties Australia. The company aimed for 30% of its distributable income to derive from offshore markets in the coming years from the current 15%.

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like lambs to the slaughter! have a look at that other “blue chip” capital & county – down 50% in 12 months. property in Europe NO NO NO NO

hmm 65% interest in growth point Australia – which is listed on asx – and is DOWN 10% since October

There is unequivocal evidence that multi-domicile, multi-currency and multi-sector REITs never deliver! The only exceptions are the multi-national tower, data center and logistics REITs where the model lends itself to a global play.

We all know that the political and business environment makes SA REITs unattractive but investing in SA managers attempting to hit the global arena is even worse. All we are doing is providing an oversized salary for an oversized ego – ingredients for a toxic investment mix!

Take a hard look at the management salaries (together with the attendant jet set travel costs) and relative returns of Stenprop, Redefine International, Growthpoint Australia, SeReit, Sirius, MAS, Rockcastle …. and so the list grows. Even NEPI is starting to falter.

My fellow South Africans – these managers take you as gullible dummies (just like the ANC!!). Surely you are not that dumb?

Agree that REITS investing overseas is a big mistake. They are driving up costs and risk without much benefit.

YOU MIGHT have a point- i wonder if the investment is more about getting capital in a solid currency than profits- at investors cost of course.

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