Growthpoint Properties SA CEO Estienne de Klerk. Picture: ROBERT TSHABALALA
Growthpoint Properties SA CEO Estienne de Klerk. Picture: ROBERT TSHABALALA

Growthpoint Properties, SA’s largest real estate company, is forcing its investors to take their dividends in cash, rather than reinvesting them in shares.

If the group, which is trading at a discount to its net asset value (NAV) per share, were to allow the reinvestment of dividends, it would have to issue new shares, which would lead to a weakening of its NAV per share.

This is because the denominator value of the NAV per share metric would increase but the assets would remain the same. 

Growthpoint’s share price has been under pressure over the past year, in line with its peers. It has lost 16% since March 2018. On Monday, it closed 2.97% lower at R23.51. 

The company’s SA CEO, Estienne de Klerk, said the group’s  NAV was about R25.70, hence it closed at a discount of 8.5% to NAV on Monday.

In its financial results for the six months to December 2018,  Growthpoint told its shareholders that its board had agreed to offer shareholders “a dividend reinvestment alternative”. 


But on Monday the group said based on market conditions and its share price, the board has decided not to continue with offering the election for shareholders to reinvest the interim dividend in new Growthpoint shares.

Shareholders would instead receive their interim dividend in cash.

Paul Duncan, a fund manager at Catalyst, said Growthpoint’s decision to withdraw the reinvestment alternative makes sense given where its share price is trading. 

“A dividend reinvestment plan is akin to issuing equity. The Growthpoint share price currently trades at a discount to net asset value and the yield on equity is high, so the decision to remove the dividend reinvestment option makes complete sense. Management are implementing good capital allocation discipline in doing this,” he said.

Evan Robins, the listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, said Growthpoint’s move is “a sign that they think their share price is too cheap for them to want to issue new shares”.

“As their share price is less than their NAV per share, issuing new shares would result in a lowering of their NAV per share,” he said.

If Growthpoint’s share price was at a premium to NAV, it wouldn’t have to issue as many shares to match the reinvested dividends and the effect on the NAV per share would be less severe, said Robins.

The listed property sector is trading at a hefty discount to its actual NAV, largely because of factors that don’t actually relate to the companies within it, De Klerk said.

He said one factor that had weakened the sector was that a number of traders in the market expected Moody’s Investors Service to downgrade SA’s local and foreign currency debt outlook. 

This had weakened long bond prices, which in turn had a knock- on effect on property stocks. The performance of listed property stocks tends to track that of bonds because they are both income-producing investments.