Growthpoint looks to Australia to step up property footprint
CEO Norbert Sasse said at an investor presentation on Tuesday, 1 December, that while the Australian market was highly competitive, it had an attractive financing cost-to-yield spread, which was not the case in SA.
Growthpoint owns property valued at more than R80bn in SA and about R20bn in Australia. It is the largest domestically focused listed real estate investment trust in SA.
"The Australian market is very competitive, but we can get a very good yield spread of about 3.5% there," Sasse said.
"Given that Australia's gross domestic product growth is expected to be between 2% and 2.5%, that is also more impressive than SA's growth. We realise that the states of Western Australia and Queensland are almost in recession but the rest are doing very well," he said.
Ma'alot Investments CEO Maurice Shapiro said Growthpoint was right to look abroad for opportunities and that many South African property groups were struggling to find growth in SA.
There was not large demand for retail assets and new offices were not being built except a few large developments for big blue-chip companies such as law firm Webber Wentzel and health group Discovery, he said.
"The South African market is now quite saturated and the economy is not growing. The overseas developed market is interesting because you can buy at yields above borrowing costs, Mr Shapiro said.
It, however, should be noted that consumer price inflation was low in many developed countries, he said.
"Escalations are only 2%-3% on rentals. So at first offshore deals help dividend growth, but as your offshore exposure grows, so does the exposure to a lower escalation rate."
Mr Sasse said Growthpoint was also looking at acquisition opportunities in Europe, but it had not found any yet.
"We would like to be active in large European economies, but we are yet to find anything that suits us. We will continue to look for opportunities.
"However, I believe we have been in Australia for seven years and we need to benefit our shareholders more from our relationships there. This means investing more in Australia," he said.
Growthpoint expected to grow its distributions between 5% and 6% in its 2016 financial year to June. This had been announced in August and disappointed investors who were hoping for 7% to 7.5% dividend growth.
Mr Sasse said in terms of its South African operations, the company would focus on improving its tenants' experiences and also that it would sell underperforming assets.
"Of course, if an opportunity to acquire a building or buildings in SA at the right price presents itself, we will consider it, but right now our focus is on refining what we have," he said.
Source: Business Day