Without downplaying Growthpoint’s handsome dividend of 173.4 cent per share in 2015 (dividends for 2016 are seen rising 5%-6%), the script is, sadly, repetitive. The group has middled for too long, even as it continues its aggressive acquisition drive. Can it get any worse? Views are mixed. While none of eight analysts polled by Reuters called the stock a “sell”, just two recommended a “buy”. The rest are split between “overperform”, “underperform” and “hold”.
Ian Anderson, Chief Investment Officer of Grindrod Asset Management, points out that "Growthpoint’s total return to shareholders last year of -10.0% was certainly amongst the lowest in the sector with only Hospitality A (-15.2%), Rebosis (-12.5%), Delta (-12.45) and Dipula A (-11.6%) providing investors with a worse outcome in 2015."
Notwithstanding what the Johannesburg firm considers “weak domestic economy and rising interest rate environment in South Africa”, the group has high hopes about the impact that recently acquired assets Acucap and Sycom will have. In the wake of subsequent deals between the two and itself, the largest REIT managed to lift the size of its 471-strong local property portfolio to R71.6 billion (excluding V&A Waterfront).
Total property assets, including the entire Australian unit and Growthpoint’s 50% interest in the waterfront, were valued a tad above R100 billion at year-end.
Growthpoint Properties’ size, which has most often been viewed as a positive, is now its achiles heel.
Anderson comments: "Given the large number of properties in the portfolio, it’s difficult for management to extract meaningful value through active asset management. Acquisitions need to be much larger to move the needle resulting in Growthpoint acquiring both Acucap and Sycom last year."
Growthpoint, under the baton of CEO Norbet Sasse, a CA, described the Acucap and Sycom deals as “a major milestone” in its quest to defensively grow its portfolio through the acquisition of complementary and quality-enhancing assets. Regarding the Australian asset, rand weakness could also play a positive role in lifting the bottom line. The same goes for just about any other company in such markets.
Closer to home, despite taking Growthpoint about two years to find the right partners, it is spreading its wings, venturing into other parts of Africa. A look at the stock, now at around R23 apiece (after eroding 15% last year), doesn’t suggest that the market has factored in the project’s potential upside. Growthpoint CEO Norbet Sasse has acknowledged that the firm took a while to work out and implement its gameplan to foray the continent. Described as the last frontier in some quarters, a good number of countries here suffer deficit in the realm of property (whether industrial, office or retail developments).
That said, the move seems a much-needed boon. With partners like Investec Asset Management, with which Sasse’s REIT has a 50/50 JV, and the World Bank’s International Finance Corporation, things look promising for Growthpoint, which otherwise deserves a pat on the back for being exemplary in the realm of green buildings and for its commitment to switch to renewable sources of energy.
Back to the investment case, taking it one step at a time, the group is starting off with the likes of Botswana and Zambia. It’s also spreading to the east and the west, where it is set on, among others, Nigeria – the big fish. Insatiable demand for quality stock, in Africa’s most populous nation, speaks volumes. A gaggle of JSE-listed firms – in virtually all spheres of Nigeria’s economy – are among foreign players that are minting it there.
Given that shopping mall are nearing saturation levels in this country, as PwC research indicates, a point also acknowledged by Growthpoint’s divisional director Stephan le Roux, taking the business beyond the home turf seem the next logical, and potentially rewarding, step for the REIT. A healthily diversified income stream, coupled with Australia, and forays into nascent markets could be just the combination the company was looking for.
It’s all looking up after all, but it could take some time for investors to buy in. It’s now up to Growthpoint – led by a talented, but overwhelmingly male, board chaired by Francois Marais, and financial director Gerald Völkel – to translate opportunities into profit. Improved prospects will drive the share price north. Until then, investors are playing wait and see.
