Growthpoint Properties | Cleaning out the closet

Growthpoint (GRT) reported growth in DPS of +6.5% y/y for FY'18, in line with management guidance. NAV per share rose +1.5% for the year to R25.56 which places the counter on a c.7% discount to NAV at the current price. We estimate that non-recurring income from GRT's Central and Eastern European investments inflated GRT's distribution for the year by c.R165m. However, excluding trading and development profits from the base period, we derive a comparable growth rate of +5.4% for FY'18.

Domestic conditions deteriorated during the year, with like-for-like NPI growth within the RSA portfolio slowing. GRT is embarking on a strategy to offset domestic weakness with offshore expansion. Positive funding spreads in the Central and Eastern European region present upside risk to our earnings forecasts, should GRT allocate further capital to Globalworth (GWI) or Globalworth Poland (GPRE) over the next year.

GRT has a 12m forward dividend yield of 9.3%, in line with the SAPY average, and is trading at a P/NAV of 0.93x. We expect DPS growth to decline to +4.5% during FY'19 but assign an exit yield of 9.1% (-20bps spread to the sector) due to GRT's high level of tenant, sector and geographical diversification, and GRT's superior liquidity profile relative to the SAPY average.