It hasn’t been smooth-sailing for Grit, the JSE’s only rest of Africa-focused real estate company, since its market debut four years ago.
Despite the African continent being hyped as the next big growth story, investor sentiment and support for the company hasn’t been enthusiastic.
The commodity price slump and volatile currencies that have hit African countries in recent years has forced property developers, financiers, and private equity firms to shift their investments from the continent to the UK and greater Europe.
And the lack of liquidity in Grit’s stock on the JSE and Stock Exchange of Mauritius meant that investors tended to ignore the company’s promise of US dollar-based income.
Bronwyn Corbett, the CEO of Grit, is upping the ante on the company’s efforts to convince global investors about Africa’s growth prospects. Grit is planning to list on London Stock Exchange’s (LSE) main board on July 31, a move that is expected to put it on the radar of international institutional investors.
“We want to diversify our shareholder base and put back the liquidity for our existing shareholders. It’s also about allowing the international investment community access to the African continent,” Corbett tells Moneyweb.
Garreth Elston, the portfolio manager at Reitway Global, says Grit’s LSE listing is a good move to boost liquidity given its focus on frontier markets.
“Grit needed to go where investors are putting money in frontier markets and that is pretty much London. Investors are scattered around the globe but they are concentrated in London,” says Elston. “The London listing was part of the final piece of the puzzle they needed to bring to address market concerns about liquidity,” he adds.
After listing on the LSE, Corbett expects Grit to be included on the FTSE Frontier 50 Index, which will expose its stock to index-tracking funds, helping it compete for institutional money in the UK.
Asked how Grit will entice global investors when it has struggled to attract backers from the African continent, Corbett says the drawcard will be Grit’s dividend yield that is higher than the yield offered by European property funds.
“We have a 9% US dollar-dividend yield growing by at least 3%/year. Some of our peer groups in London are sitting on a US dollar-dividend yield of 6%.”
Beyond offering dividend yields, Corbett says it’s also about giving international investors exposure to its $600 million (R7.9 billion at the time of writing) -worth property portfolio of retail, industrial, office and hotel assets based in Botswana, Kenya, Mauritius, Morocco, Mozambique, Ghana, and Zambia.
Grit’s focus is on counter-party leases, meaning it invests in properties that are occupied by blue-chip companies – including Vodacom, BP, KPMG, Barclays Bank, Beachcomber Hotels & Resorts and others – that pay rent in US dollars.
Corbett says investor sentiment towards Africa’s real estate market has improved as investors are on a search for compelling returns.
“Europe and the UK are battling to achieve growth in dividend yields and total returns as investors are concerned about Brexit challenges. International investors are now forced to look at alternative investments in Africa because their funds are not performing up to expectations.”
Arguably, the true test of whether this positive sentiment about Africa will be sustainable is whether Grit achieves its target of raising a minimum of $120 million (R1.6 billion) in a private placement process ahead of its London listing.
It will begin a process of issuing up to 250 million new shares at a net asset value per share of $1.43 on Thursday. Corbett, who hopes to raise $200 million (R2.7 billion), says Grit has already received pre-commitment from investors.
The proceeds of the private placement will be used to purchase office and industrial properties in Ghana, which have the potential to grow its property portfolio from $600 million (R7.9 billion) to $1 billion (R13.2 billion). Given Grit’s pipeline of assets, Corbett says its property portfolio could easily grow to $3 billion (R40 billion) in the next two or three years.