May is Africa Month and my guest on this latest episode of The Property Pod is Thomas Reilly, managing director of Lango Real Estate. Lango means ‘gateway’ in Swahili, and the group is a major investor on the continent, targeting property opportunities in the rest of Africa (excluding South Africa).
As the brainchild of JSE-listed property giant Growthpoint and Investec Asset Management (now Ninety One), the Africa-focused fund was established as Growthpoint Investec Africa Property, or GIAP, several years back, with Reilly heading the group.
However, with Investec Asset Management becoming a separate company and renamed Ninety One, GIAP changed its name to Lango last year.
In this podcast, London-based Reilly gives his insight into investing in Africa as well as an update on Lango’s next phase of expansion, which includes listing the fund in the UK and making its first acquisition in Kenya.
Highlights of his interview appear below the gallery. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts.
Some of Lango’s property assets
“Lango has grown enormously since we last spoke. As you remember, it was pre-Covid [that] we last had a catch-up. Since then we have grown to be one of the leading real estate companies on the continent, ex- South Africa.”
“We have assets on the balance sheet in excess of $620 million-odd – and that’s effectively close on about R10 billion worth of assets. So, a significant property group in a reasonably short space of time.”
“We have a management team … which has also grown commensurate with the size of the business, so we have people on the ground, not only in London [but in] Johannesburg, Mauritius, Ghana, Nigeria and elsewhere. So, Lango has become a well-oiled machine.”
“We are well-positioned to continue growth at this stage. Right now [we are] invested in the leading economies on the continent outside of South Africa and the usual names, essentially. We’ve stuck to major cities such as Accra, Lusaka, Lagos and so on, and are looking to broaden that footprint in the coming months as well.”
Is Growthpoint still the biggest shareholder? Which are the other investors?
“Growthpoint is a large shareholder. It is the largest shareholder, to be accurate. It holds roughly 16% of our business, so a large shareholder but clearly not a majority shareholder in that sense. Nonetheless, Growthpoint is a key stakeholder in our business alongside the old Investec Asset Management, now Ninety One. And in terms of growth of the business and so on it’s a party that we look to for assistance in a number of respects.”
“More and more Lango has become independent. It is ultimately a business that will separately IPO [initial public offering]. So we are targeting a listing in the next three years or so, and a project is currently under way in that regard.”
“The intention at this stage is that we will be London-listed, [with the] possibility of looking at secondary listings elsewhere at that time or thereafter; but primarily London-listed at this stage is what we are targeting.”
“Growthpoint is obviously a key stakeholder. They’re an enormous business within the South African context and for that reason we have decided not to pursue acquisition strategies in South Africa. There’s no point in competing with the largest Reit [real estate investment trust] in that country and at the same time as their being a major stakeholder in our business.”
“But there are a lot of opportunities for us north of the border. We are looking at opportunities in countries such as Kenya right now, and more specifically Nairobi, which will continue the theme of us investing predominantly into capital cities.”
“You’re very unlikely to find us investing outside of capital cities. It’s a very focused approach in terms of where we like to invest and where we see sustainable assets that we can acquire.”
“That also leads into the type of assets, I guess, that we look to invest in. So again, outside of you being unlikely to see us investing outside of capital cities, you’re unlikely to see us investing into other asset classes within the real estate market. So it’s going to be office, retail and industrial where we can find it. You’re not going to see us in residential. You’re not going to see us in hospitality, in healthcare and so on. So it’s a very focused approach all round.”
“I think that to a large extent combined with the quality of the assets that we’ve invested in, in these major capital cities, [it] has stood us in really good stead over this last sort of two-year period dealing with Covid and the ramifications of that.”
“I think the next step for us is a move into Nairobi. That’s definitely what we are targeting.”
“We are in the process of hopefully concluding the raising of additional capital in the next few months. The intention is to deploy a large portion of that capital into Nairobi. So that is first choice for us.”
“The rationale behind that is pretty simplistic. We are very concentrated at this point in time in West Africa. We have about 47% of our asset holdings in Accra, which up until now has done really well for us. Accra, and Ghana more generally, has almost been one of the shining lights on the continent in terms of democracy, growth. The whole underpin in terms of the assets we’ve had there has been really sound, so we’re very happy with our performance there.
“In terms of spreading our eggs and not having them all in one basket, we have decided to look at Kenya. It is the obvious entry point into East Africa. It really is the hub of East Africa, and arguably – outside of Johannesburg – probably the most advanced financial centre on the continent.
“So we are quite excited about that. It adds a different set of geopolitical drivers to the business. It adds a different tenant base. It adds arguably a slightly more mature property market, which we’re able to potentially invest in at this current juncture at a pricing which looks pretty attractive. So for that reason we are pursuing Kenya and more specifically Nairobi …”
“Separate to that there are opportunities elsewhere as well. We are looking at Morocco, a very niche opportunity in terms of industrial [assets] potentially that we’re trying to unlock. So we’re not really too interested in office or retail space in that country. It’s much more a logistics-orientated move that we are considering there.”
Besides Growthpoint and the International Finance Corporation [IFC], is Lango targeting other new investors, such as pension funds?
“Yes. I think with pension funds you’ve hit the nail on the head, Suren. If you look, the bulk of our investor base at this point in time is actually pension-fund related. We don’t see that changing. Pension funds are obviously looking for long-term stable returns in terms of yield.
“We are a business that is really strategically positioned to deliver that. I think from a yield perspective the fact that we are a hard-currency business at the end of the day at this point in time suits them, and I don’t see that changing. So I think the likes of the DFIs [development finance institutions] and so on, yes.
“While we have the IFC, obviously they’re a core anchor shareholder of ours as well; they were also in the business from the outset. We’d like to think they will continue to follow rights in terms of subsequent share issues by ourselves [Lango].”
“But I think that the majority of our shareholding over time is going to continue to be dominated by the pension fund industry and that speaks to the industry globally. So we are seeing shareholders potentially coming out of all different pockets of the global savings industry.”
Is hard currency going to continue to dominate the real estate investment landscape in Africa?
“Yeah, I think, in terms of the dollarisation of the rest of the markets in Africa, if we look at our specific business at this point in time we have circa 96% to 97% of our income in dollars. That is the current situation. How it is going to unfold going forward may be a separate discussion.”
“My view on that personally is, if one has to take sort of a 10- or 15-year view, which is a very difficult thing to do, I think it would only be fair to expect that several of these countries may well become far more liquid in terms of their own currencies.”
“What is currently not in place at this point is a suitable level of development of their own capital markets, their own domestic capital markets.”
“So they need to go through a programme of really advancing the developments of their capital markets, having suitably liquid debts in bond markets, essentially, in those countries, so that one can actually finance one’s assets appropriately and cost effectively in local currency.”
“We wouldn’t object to that, to the extent that we could finance, at a relatively competitive level, in Ghanaian cedi or in Nigerian naira, or whatever the case is. We’d be happy to consider that.”
“So we’d be all for that, but the reality at this specific juncture is that the liquidity is not there. You cannot finance real assets in those local currencies to any meaningful degree at this point in time. The dollar remains the currency of tender.”
What are some of the other challenges, and opportunities, for Lango in Africa?
“Running a business in Africa with a shareholder base that’s international is a very complex exercise. We are fortunate that we have a management team that is extremely experienced. We are very much in tune with our assets and effectively manage these assets with a very firm hands-on approach.”
“Without that sort of hands-on approach, I think particularly managing assets in these different countries over the last two years or so would’ve been a very difficult exercise. But we’ve managed to turn it around.”
“We’ve had great results over the last two years. Just a headline as an example. If we look at our rental invoices that we’ve issued over the last two years to our tenant base, we’ve managed to collect in excess of 112% of those billings.”
“What that means is not only have we collected the invoicing that we’ve issued, but we’ve managed to delve into the past – where obviously we acquired a lot of these assets with historical arrears or historical bad debts almost – effectively.”
“So, while people often may have maybe a slightly – I don’t want to say – negative slant in Africa, it’s not necessarily familiar to people. I think that the reality and the output that we’ve managed to deliver over the last two years or so has really surprised a lot of people.”
“We’re very excited about what the next 12 to 24 months will bring us from an asset perspective, and then obviously [there’s] the planned IPO in the next three years. So an exciting period of growth for Lango ahead of us.”