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It would take a brave toe to dip into property, but why not?


It would take a brave toe to dip into property, but why not?

Growthpoint lays out the surprisingly firm lie of the land

Giulietta Talevi

Property juggernaut Growthpoint’s international expansion drive has necessitated a shuffle of top management. We asked Norbert Sasse, now in charge of Growthpoint’s global operations, whether this is a first step to the CEO departure lounge?
No. The reality is the business has grown dramatically over the last couple of years. I just don’t have the time to get that involved in the SA business anymore and my focus will be more on the strategies which include internationalisation.
You want offshore to account for 30% of your business, but we’re now seeing how many SA companies who ventured abroad have come a cropper. Why should it be any different for a property company?
Well, back in 2009 that was really when we got the first scepticism because not only was it offshore, but Australia in particular. I kept getting asked the question, what are you guys doing? You’ve gone mad. If you look at (Polish and Romanian group) Globalworth, the principal founder of that business is still a very big shareholder.In putting the money into these businesses, it’s not as if we’re buying shares or something, and that person takes the money and runs off into the distance and we’re left holding the baby. Everybody’s diluted to let us come in.
If you look at the guys that have failed, often you find SA companies try and expand into these new markets by selling their products where generally the market isn’t that receptive.  Our view on the property front is: if you’ve got the best quality property and you’ve got it in the right location, there should always be demand for that, irrespective of who owns it.
Sure, but it’s not just a case of  selling products people don’t want but getting suckered on the price of a deal?
Again, are you putting money in or is the money leaving the table? So even if you paid a higher price, but the money went into the vehicle and got used for the business, by the business, I think there’s a difference there.
In the Australian vehicle we ended up with 65% of it, but every cent went into the company, not one shareholder took money off the table. With GlobalWorth we’ve now put in about €450-million and  every single cent has gone to buy more property or refinance debt.
It’s a CEO’s job to be upbeat but how likely is it that the property sector is due for some very lean years – globally and in SA?Look the rising yield factor is definitely something to bear in mind. But I think the other element which shouldn’t be ignored is growth and inflation. So these interest rates rising are generally linked to growth, and inflation is probably the biggest friend of property. To understand that properly you’ve got to understand that if the building cost of replacing or creating new stock is going up by 10-15% per year, eventually you have to get higher rentals for feasibilities to make sense.
The one thing that is certainly lacking in the domestic market is underlying growth. Property cannot sustain the performance it’s delivered over the last 10-15 years where an economy is not growing.
Are we at the start of it getting really bad in SA?
I’d hate to think we’re at the start of it – I hope we’re at the end of it. Private sector and foreigners are ready I think to invest, they just need certainty on policy.The issues that have come to light in the Resilient stable of companies have had a big impact on the sector. Is this something you’ve kept an eye on?
Yes. It’s obviously been a factor in the listed property sector for the last 10 years with a particular grouping of companies trading at extreme valuations, delivering quite spectacular dividend growth rates which none of the other more conventional property companies like ourselves were able to achieve. So it distorted the market entirely to the extent that the premium to NAV that the sector was trading at was circa 40%, and excluding them the sector was trading at NAV. It created all sorts of issues when you’re comparing performance: we significantly underperformed.
So this correction may have been exactly what was needed?
Correct. There’s no rhyme or reason that anything should trade at two times NAV. I can tell you now, not one single international investor would have bought a share at that NAV. What could possibly give rise to a situation where you’d be happy to pay two times the valuation of the assets? It’s nonsensical. Property as an asset class shouldn’t be as volatile and it’s impossible to generate super returns out of vanilla property if you stick to the basics. If you want to be a hedge fund, then it’s a different story.

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