Warsaw-listed Griffin Premium RE is turning itself into a pure Polish office play ready to become a REIT if and when the law allows. US private wealth is moving out of its equity, and the entry of AIM’s Globalworth sets it on course to grow.
Incorporated only last December out of a portfolio of nine properties held by Echo Investment, GPRE is in many ways the counterpoint to Echo Polska Properties, also set up to become a Polish REIT by Oaktree Capital Management, alongside Pimco. Each has been moulded out of capital moves and portfolio assemblies by the US group plus others over the last two to three years. Each is constructed using a Dutch NV holding, both are now almost entirely spun off by these firms, and each is now striving to be a pure-play REIT in one or the other Polish asset classes. For EPP it’s shopping malls.
To complete the circle, GPRE is in the process of buying a €160m Polish office portfolio from EPP which should bring its own AUM up to about €800m and give it a stronger base to expand, say Griffin’s two senior executives, CEO Malgorzata Turek and CFO Rafal Pomorski. “This is a milestone in the development of the company going forward because it will be a strong boost,” Pomorski says. The three new properties from EPP will increase AUM by about one-third, “and this will be an excellent complement to our current structure in terms of geographic diversification.”
Oaktree earlier this month signed to sell its controlling stake in GPRE to Bucharest-based Globalworth, behind which is the giant South African primary REIT Growthpoint. Globalworth is acquiring a minimum 50.01% and is likely to move up eventually to a cap of 67.9% of issued capital of the Dutch NV. It intends to keep GRPE’s Warsaw Stock Exchange listing. The direction, however, is largely driven by Growthpoint which has spotted, as have several other South African REITs – including Redefine which now controls EPP – value and opportunity in Poland.
Turek said the new portfolio takes GPRE, notably, into the northern port city of Gdansk, adding that location to other regional cities where it is already present. “They have very mature markets in Warsaw, Kraków and Wroclaw, but Katowice and Lodz are becoming better and better from the investor perspective,” she says. “And Gdansk is a new market for us. It’s really growing, so that’s why we bought into offices there. It’s a really beautiful city.”
Aside from office, GPRE intends to focus somewhat on mixed-use. But those two asset classes will define the portfolio parameters as Globalworth provides the power to expand, drawing capital from several sources. “Romania has become too small for them so they simply want to expand,” said Turek. “They chose Poland for several reasons: the market here is very good currently, there are solid financial economics, and there is good potential for further development… They want to create a platform that will be a leading platform in terms of offices in Poland. So the announcement we made about the acquisition of three new properties is only the first step towards this objective.”
What is important to the two executives is to maintain a stable and high dividend payout ratio, ready for a smooth transition to a REIT if legislation comes. “The dividend level we envisage to pay is around 65% of funds from operations,” says Pomorski. “So it means that basically everything we earn we will pay out as a dividend every year.”
BIE COMMENT: One legacy of the private equity ownership of GPRE is a debt load at €283m, projected to grow to €330m next year. This compares to GPRE’s market capitalisation of around €193m at its present share price of PLN5.24 (€1.24). Thus the challenge over the next few years, apart from expanding the assets, will be managing the balance sheet. Yet with a long-term capital-rich majority shareholder now firmly in place, this looks unlikely to be a major hindrance to growth.