With a challenging and muted economic growth in SA, Growthpoint Properties, the largest listed property group in the country is confident that growth will come from its asset management business more than its core business.
The asset management business, which was established six years ago, has three unlisted funds — Lango, healthcare and student accommodation funds valued at about R15.5bn. The company intends doubling this in five years through acquisitions and developments.
“What’s critical is to attract third party institutional capital, further develop our distribution network and match the product with investors,” said Norbert Sasse, Growthpoint Properties CEO, adding that this model can be replicated and grown at a much greater pace than trying to grow an office or industrial property portfolio for example.
Growthpoint is a real estate investment trust with portfolios across Africa, Australia, the UK and Eastern Europe.
Sasse told Business Day that the asset management business (asset management platform) resulted from the group changing its strategy to adopt an equity light business model. “We wanted to build a fund management business that will grow through acquisitions and co-investing and didn’t compete with our SA portfolio in the office, retail and industrial property sectors.”
Instead of owning 100% of assets as is the case with the core business, Growthpoint invests up to 20% of its equity into the business.
“Our balance sheet was equity heavy (70% of what we owned), and so we decided to put less equity but leverage our skills and expertise in asset, property, facilities and development management,” said Sasse.
Growthpoint gets 100% of the value of the assets under management (investment) in fees charged as it manages all assets within the business.
“The funds are great risk-adjusted investments into opportunities that until now were not widely accessible to institutional investors. Investors have the opportunity to invest early in sub-asset classes that are expected to rerate over time as more capital is invested in the sectors,” said George Muchanya, head of corporate finance at Growthpoint.
In 2018, the company launched its first fund outside SA, Lango - formerly known as the Growthpoint Investec African Properties - and later that year, Growthpoint Healthcare Property Fund was launched.
Growthpoint approached the Africa story with a capital light strategy co-investing originally with Ninety-One (formerly Investec Asset Management).
Lango, an emerging leader in the African real estate market has a portfolio comprising of office and retail assets in Ghana and Nigeria with plans to expand to East Africa. Its assets have grown to $650m (R10bn).
The healthcare fund’s mandate is to invest in acute, day and specialist hospitals as well as laboratories and biotechnology manufacturing and warehousing facilities. Growthpoint owns 62% of the fund with assets valued about R3.5bn.
In December 2021, the company launched the R2bn Student Reit fund, a purpose-built student accommodation portfolio offering 5,000 beds. The company intends listing this fund in seven years’ time once its assets reach R12bn.
Sasse said he thinks each of these funds have huge potential to double in value within the next five years, adding that the challenge remains to identify the right alternative asset classes and keep them unlisted to build scale before listing. During this period, he says he would like to add three funds such as data and storage facilities to the business.
“We will consider offering asset management services to other businesses since we already have the expertise and skills internally without necessarily having to add new people thus improving the profitability of our business,” said Sasse.
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