V&A Waterfront in safe Growthpoint/PIC hands

South Africa’s super prime commercial property asset, the V&A Waterfront, seems to have landed in safe local hands, if the latest financial results of Growthpoint Properties are anything to go by.

Growthpoint the JSE listed property company, acquired 50% of the V&A Waterfront last year together with the Public Investment Corporation (PIC) which took the other 50%. Each group paid R4.9bn for its 50% stake in a transaction that was celebrated as bringing back South Africa’s prime property asset to local ownership.

Growthpoint and the PIC bought the property from a consortium led by London and Dubai based investors who had partnered with local BEE investors including Vincent Maphai and Hassen Adams. The PIC factor is particularly attractive to patriots who point out that South Africa’s prime asset is now owned by an entity which represents interests of millions of ordinary people. The PIC is public owned asset manager which amongst others manages the funds of Government Employees Pension Fund. The PIC has assets under management of more than R1trillion.

Growthpoint financial results for the year ended June show the largest JSE listed property company increasing its asset base to R53bn. The group said the fair value of investment property in the V&A Waterfront has been adjusted upwards by a revaluation of R38,4 million making the property to boast R5bn investment value.

Growthpoint reported a 6.1% increase in distribution (dividend type distribution) to its investors from revenue of R5.2bn. Growthpoint CEO Norbert Sasse attributed this positive performance to improved portfolio occupancy levels, exacting cost and arrears management, and the distribution enhancing performance of Growthpoint Properties Australia (GOZ). Growthpoint owns 64.5% interest in GOZ which has a property portfolio of 41 properties in Australia valued at R13,1 billion.

“Notwithstanding sluggish local, and uncertain global, economic conditions, we are pleased to report positive performance,” said Sasse.

Growthpoint’s venture into the V&A Waterfront initially caused grave concern for investors. This was on the back of observations that Growthpoint and the PIC had overpaid for the V&A Waterfront. The consortium led by London and Dubai based investors had paid about R7bn for the property in 2006. This meant that Growthpoint and the PIC were paying close to R2bn more for the property 2 years later.

The purchasers insisted that there was value in the deal. Sasse reiterated this point this week saying “The perception that the V&A is too expensive is incorrect. The V&A is open for business in respect of development, redevelopment and investment. However activity is constrained by weak demand for office space and weak residential demand,” he said.

The new owners of the V&A Waterfront have largely pinned their hopes on expansion of the property.

Growthpoint said “This prime asset performed in line with originally projected levels, with hospitality and leisure properties however remaining under pressure”. It added that it was looking to secure and grow rental streams at the V&A Waterfront, The Clock Tower precinct redevelopment was completed and is around 73% let, the new 18,100m² Allan Gray head office development should be finished next year (September 2013) and the Food Court refurbishment will be completed in early November 2012. Sasse said plans are in place to realise further performance and development potential, and net distributable income from V&A Waterfront should increase by some 7% in the coming year.

Looking ahead Sasse said business confidence in SA is at a 12-year low. “GDP growth prospects continue to be revised lower on a weaker global economic outlook, particularly in the Eurozone”.

“Property fundamentals remain solid, but like-for-like net property income growth will come under pressure with little likelihood of consolidated vacancies reducing much further than the present 4% (2011: 5%) in Growthpoint’s SA portfolio.”

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