After contemplating a foray into the rest of the African continent for years, the JSE’s largest real estate investment trust (Reit), Growthpoint Properties is now ready for the move.
Growthpoint will enter into a 50/50 joint venture with Investec Asset Management to build an Africa-focused real estate management business.
Growthpoint will initially invest US$50 million (R713 million) into the business and has roped in the International Finance Corporation which will invest US$40 million (R570 million).
Its initial investment capital is part of its efforts to raise US$500 million (R7.1 billion). The balance will be raised from local and international institutional investors.
Growthpoint CEO Norbert Sasse says the company’s foray into the continent was delayed by the challenge of finding ‘the right’ partner to embark on investments with.
Its investment mandate is wide, as commercial real estate investments in markets such as Namibia, Zambia, Nigeria, Ghana, Morocco and others are targeted. The focus will largely be on existing office, retail and industrial property assets, with the portfolio expected to comprise 80% income-producing assets.
Developments will be a small focus, with 20% of its investment earmarked for real estate developments. This means that Growthpoint shareholders will soon have exposure beyond the Australian market via the company’s 65% stake in Australian Stock Exchange-listed Growthpoint Australia.
Growthpoint will get hard currency income through the Africa venture beyond its commercial property assets valued at over R100 billion, which include a 50% interest in the V&A Waterfront in Cape Town.
Before the listing of Africa-focused fund Delta International (now rebranded as Delta Africa) last year, JSE real estate investors had exposure to the continent through funds such as Resilient Property Income and Attacq Limited. These counters invested in African properties which were part of their larger commercial property portfolio. Recently, capital growth and development counter Pivotal Property Fund got in on the act by acquiring an office property in Nigeria.
Over the past five years, private equity funds have also been aggressive in real estate greenfields projects with a five-year investment horizon. The key differentiator, Sasse says, is that Growthpoint’s investments on the continent are focusing on income-generating properties. But the question is; whether it’s too late for investments in the continent given others have got in earlier? Sasse says not quite. It seems like now is an opportune time to make investments. “There was hype about the ‘Africa rising story’ and over the past six months there is now sanity over the market with the commodities cycle and devaluation of currencies. The froth is no longer evident,” he says.
Although, the planned African vehicle is not open to public investors, a listing might materialise in the next five to seven years depending on the take-up. “We might list it depending on the market cycle. The market must be conducive to receiving this African real estate venture and there must be appetite.”
It seems like diversifying is becoming a priority for property companies, given that borrowing costs in SA currently outstrip yields on properties. With the cost of five-year fixed debt being about 9.5%, property companies are getting at best a 7.5% yield on property. While throughout the continent there is a positive yield spread of up to 5% depending on the quality of the property, on the back of cheap dollar-denominated debt, says Sasse.