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Growthpoint buys into in-house trend

Posted On Friday, 01 June 2007 02:00 Published by eProp Commercial Property News
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Growthpoint Properties has announced it is opting for an in-house management strategy

Norbert SasseIn line with international listed property norms, SA's largest listed property company, Growthpoint Properties, announced this week it was opting for an in-house management strategy.

The company would be acquiring its external property management and administration business for R1,57bn.

Growthpoint, which is managed externally by Investec Property Group, said it was acquiring the property administration business from Investec Property Group, and the property fund management business from Investec Property Group and black economic empowerment owners AMU Trust and Phatsima Properties.

Growthpoint CEO Norbert Sasse, said Growthpoint had gone on a number of international road shows in the past three years, and found international property investors preferred in-house management structures to external ones.

"We see it (the Growthpoint transaction) as a potentially industry-changing transaction," said Sasse.

Only a few of the 30 listed property stocks on the JSE have internal management structures.

Companies with external management companies have to pay asset management fees to these management companies every time the managers bring property deals to the table.

There has been criticism - fair or not - of the external management approach from property analysts and fund managers, who say it could encourage managers to bulk up the size of the property companies' portfolios to earn the fees rather than act in the best interest of unitholders.

Sasse said the transaction would be earnings-enhancing, and Growthpoint would be more competitive in pricing new deals with the removal of the 0,5% asset management fee paid to external managers on every large property deal.

This would save Growthpoint R145m a year. "It could herald the start of South African companies following the international trend and opting to have in-house management," said Sasse.

The purchase price will be settled through the issue of 98,3-million new Growthpoint linked units at R16 a linked unit. The transaction will also boost Growthpoint's market capitalisation to about R19bn.

Sasse said Investec Property Group had over the past five years "successfully nurtured and built up Growthpoint from R90m in assets" to R20bn in assets.

Growthpoint chairman Sam Hackner said Growthpoint had now "come of age".

"The company is approaching its long-expressed vision of inclusion in the JSE Alsi top 40 index."

The directors of Growthpoint, SA's largest property holding and investment company, believed the company should have its own management and should conform with the trends in the international property and real estate investment trust (Reit) industry, said Hackner.

Reits refer to listed property companies and funds in the US, large parts of Europe and other countries. In SA the listed property sector is keen on adopting the name and structure of Reits to bring itself in line with international norms and attract international investors.

Sasse said he had no doubt that the adoption of in-house management strategies and the Reit structure would increase foreign interest in SA's listed property sector.

Growthpoint said it would continue to have a business relationship with Investec Property Group, and that both parties would give each other first offer on any new property developments they undertook.

Macquarie First South property analyst Leon Allison said the transaction was a "positive development. Internationally, there has been a trend towards internal management for listed property companies.

"We may see a similar trend in SA," said Allison.

Mariette Warner, head of property funds at Stanlib, said the transaction was a "very positive deal for Growthpoint".

"Essentially, what it means is that in buying the management company, they (Growthpoint) are saving their asset fees they used to pay to Investec and this saved income represents a 9% yield on the cost of the acquisition of the management company," said Warner.

She said this saved income was passed on to Growthpoint unitholders as additional income distribution.

Last modified on Thursday, 24 April 2014 14:04

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