Growthpoint Properties, SA's largest listed real estate counter, is banking on its international strategy, as well as its trading and development division and new funds management business, to help it weather the worst local economic conditions it has experienced in 20 years.
While there is much global uncertainty at the moment with the coronavirus wreaking havoc in markets across the world, offshore property in general has come to the rescue for JSE-listed real estate stocks, buffering them to a certain extent from the effects of a South African economy that has barely grown in the past five years.
At the company's interim results presentation this week, group CEO Norbert Sasse said that Growthpoint, which has a 35% offshore exposure, managed to grow its payouts to shareholders 4.5% on average over the past four years largely thanks to its international property assets in the UK, Australia and Eastern Europe, as its South African portfolio was "weak".
The level of Growthpoint’s
offshore exposure
— 35%
The South African picture has deteriorated so markedly that Growthpoint's offshore property exposure is "ensuring our distributions are still growing nominally" overall, with payouts increasing 0.2% for the six months to December 2019.
"There are no material signs that indicate a recovery in the South African market. These signs would be infrastructure spending [by the government] being switched on and economic growth. In any country, you would look to the government to stimulate growth, but the government has lost the ability to do this," says Sasse.
The private sector would be another avenue to stimulate the economy, but Sasse says its financial health has deteriorated, and it is also disinclined to invest because of all the policy uncertainty around issues such as land expropriation, as well as the damage done to confidence by state capture.
And with global growth prospects significantly lower now thanks to shock events such as the coronavirus, no foreign direct investment is likely to come to the rescue.
Estienne de Klerk, SA CEO for Growthpoint, says the company's "internationalisation" plan is its main pillar in its strategy to grow in spite of economic headwinds.
De Klerk says Growthpoint's "UK opportunity", Capital & Regional, in which it bought a controlling stake in a nearly R3bn deal last year, is "brand new" and was bought at an attractive price.
Growthpoint acquired the interest for 28.3p (R5.80) per share, which was a 28% discount to Capital & Regional's (C&R's) 36p per share net asset value.
"It's a buffer if there [are] further negative revaluations of C&R's retail assets."
Property in the UK has been hit particularly hard by the fallout around Brexit, with most landlords experiencing major devaluations of their assets, particularly bricks-and-mortar shops, which have also been negatively affected by the rise of online retail. Now that there is more certainty about the timeline of the UK's exit from the EU, investors are hopeful of some type of recovery.
De Klerk says C&R's retail properties include community needs-based shopping centres adjacent to train stations and which form part of the "town square", as opposed to the larger regional malls that have fallen out of favour with shoppers in the UK.
He says Growthpoint's investment in Growthpoint Australia (GOZ) is also performing strongly.
The 62.2% investment in GOZ, which was acquired just after the global economic crisis in 2009 at a cost of R9.6bn, has more than doubled in value since then to its current R19.6bn.
"GOZ is the 10th-largest real estate investment trust in Australia today and is invested in metropolitan offices and industrial properties that have been the best-performing assets in that environment."
De Klerk says Growthpoint, which also does developments for third parties for fees, will look to this segment as its second pillar to boost growth in future.
Its third platform consists of its funds management business, which manages two property funds.
The Growthpoint Investec Africa Property Fund is managed in a joint venture with Investec Asset Management and is 19.7% held by Growthpoint. The other fund is the Growthpoint Healthcare Property Fund (GHPF), in which Growthpoint holds a 62% interest.
Growthpoint is the only South African property stock with exposure to the health-care property market and its clients include Mediclinic, Netcare and Busamed, which occupy the assets and operate the hospitals.
GHPF delivered 7.5% growth in its interim distribution, indicating its resilience in a weak economy.
Even with the gloomy local outlook, Sasse says the company has "not lost all hope in SA".
"We spent R1.4bn on new developments and capex during the period in SA [six months to December]."
But when it comes to development, Growthpoint won't develop a property unless it is significantly pre-let. One of its newest developments is 144 Oxford in Rosebank, Johannesburg, a 36,000m² building that is now fully let to tenants such as PepsiCo and the international investment banks UBS and Rothschild.
De Klerk says some of the development spend is also on the health-care fund, where the group has completed the expansion of the Hillcrest Busamed hospital in Durban and is due to complete the construction of the new specialist Pretoria Head and Neck Hospital in Menlyn Main on April 20.
Keillen Ndlovu, head of listed property at Stanlib, says Growthpoint's results, though disappointing, are in line with expectations.
"They are a reflection of the current tough environment in SA and could have been worse if Growthpoint didn't diversify into offshore markets," says Ndlovu.
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