Growthpoint casts net far and wide
Investments a platform into central and eastern Europe
Growthpoint, the largest South African-based property fund, is struggling to move the needle and grow, but it is trying an array of methods to do so.
Growthpoint's asset base, which includes half of the V&A Waterfront in Cape Town, is worth about R120-billion on a consolidated basis. It has a market capitalisation of R71-billion. The company has invested extensively in South Africa and also in Australia, through its subsidiary Growthpoint Australia.
Its latest plan is to invest in healthcare - but through an off-balance-sheet entity called Growthpoint Healthcare.
Its African fund has not worked yet, due to challenges in getting money out of some countries, and analysts have been critical of its expansion into Romania's office market.
MD Estienne de Klerk said he wanted Growthpoint Healthcare to be worth R10-billion in five years, after which it could be listed separately. The company, launched last week, has a R2.5-billion portfolio with two hospitals in Cape Town and two in Durban.
The entity is being externally managed. But a number of analysts would rather it was included on Growthpoint's balance sheet to avoid potential conflicts of interest.
Fayyaz Mottiar, head of listed property at Absa Asset Management, said he was very concerned about Growthpoint being an external manager of the healthcare group as this was not in the interests of good governance. "The whole industry has moved away from listed companies acting as external manager. We want to align the interests of management with those of shareholders," he said.
Late to the party
Many property companies have invested in eastern Europe over the past two years. Critics feel that Growthpoint has come too late to the party.
Last year it bought an interest in Globalworth Real Estate Investment, a Romanian group. Romania has been growing healthily alongside other countries in the region but Growthpoint's investment is relatively small.
The company spent only 186-million-euros - R2.7-billion at the time - on a 26.9% interest in Globalworth.
This was a drop in the ocean compared to rival Redefine Properties, which created Echo Polska Properties Polish, said Anas Madhi, executive director at Meago Asset Management.
R120-billion: The value of Growthpoint's asset base on a consolidated basis
Growthpoint CEO Norbert Sasse said more capital would be injected into Globalworth. "Next year, we will inject capital into Globalworth. We feel we have found a strong partner, having spent a long time carefully looking for a deal in the region as opposed to being reckless, which should benefit our shareholders in the long run."
Globalworth invests largely in offices in Romania, which has been an information technology hub for eastern Europe since the Soviet era. It also has an active business outsourcing and processing industry.
Average Romanian wages are still about a fifth of those in Germany and the UK, making the country an attractive spot for companies to base their secondary offices.
"Our investment in Globalworth Real Estate is a platform into central and eastern Europe and can expand beyond Romania into places such as Poland and Hungary," said Sasse. Ron Klipin, a manager at Cratos Wealth, said he was investing in funds that were more focused and less diversified than Growthpoint.
"Growthpoint is a large-cap, diversified property business. It is slowly expanding offshore. At the moment, I prefer to invest in more focused property groups that are based offshore. I also invest in companies with very large offshore exposures and Growthpoint is not there yet. Currently Redefine Properties, Resilient REIT and Fortress Income Fund tick most of these boxes," said Klipin.
Sasse said he wanted to increase the contribution to Growthpoint's bottom line from offshore sources. While this would involve spending more capital in Romania and looking for a profitable African investment, the main thrust was to invest more in Australia.
Hot Australian market
"The eastern coast of Australia is very hot as an investment destination. You could say this part of Australia and South Africa are from different galaxies in terms of investment appetite," said Sasse.
"We recently increased our stake in Growthpoint Australia to 65% and are looking for more income-generating properties in the country. In order to get 30% of our bottom line coming from offshore sources, we will invest further in Australia. It is a hot market right now, no doubt."
Growthpoint Australia was expected to achieve 2.3% growth in distributions for the financial year to 2018.
Growthpoint as a whole reported 6.1% distribution growth for the six months to December and is expected to achieve similar growth in the year to June. Year to date, the company's share price is down 5%, compared with a 2% gain in the sector.
The company has been a solid performer since it was formed about 16 years ago and it should continue to meet its distribution guidance even if this is not in the double digits, according to Evan Robins, the listed-property manager of Old Mutual Investment Group's Macrosolutions boutique.