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Mara Delta: Investors are warming up to the Africa story

After a slow start to its growth ambitions, Mara Delta is ready to take on the African continent.
Mara Delta's CEO Bronwyn Corbett.

Although the initial investor sentiment towards Mara Delta (formerly Delta International) was hardly fervent, the company is starting to carve out a niche as the only Africa-focused Real Estate Investment Trust (Reit) on the JSE.

Property investments beyond South African shores have been hard to stomach for many income-chasing investors given the difficulties in assembling debt facilities to fund growth ambitions and increasingly volatile currencies in many African economies.

And Pan-African Mara Delta has had its fair share of these challenges since it was reverse listed into Osiris Properties in 2014 and assembled by Sandile Nomvete’s Delta Property Fund.

Despite its early problems, it seems like management has turned the company around, as the property counter continues to deliver on its dividend promises. Mara Delta posted a 4.1% growth in dividend payouts to US$11.75 cents for the year to June 2016, which was in line with market expectations.

Mara Delta’s CEO Bronwyn Corbett says South African investors are starting to warm up to the company given its track record.

“This will be our fourth distribution payout and we have seen more interest in Mara Delta’s stock given the rand challenges. We know that investors are looking to dollar or hard currency denominated returns and we have been able to deliver a strong dollar dividend and the growth on that,” Corbett tells Moneyweb. 

Part of its drive to convince investors – who were probably sitting on the sidelines waiting to see how the Africa story pans out – has been building scale to its portfolio. 

Says Grindrod Asset Management’s chief investment officer Ian Anderson: “While other Reits have abandoned or scaled back their expansion into Africa, Mara Delta has continued to grow aggressively, in terms of both portfolio size and geographic diversification.”

Anderson says while investing in Africa comes with its own set of risks, Mara Delta’s management team have delivered on the expectations they created in the market.

Mara Delta only started with two properties in 2014 – its 30 711 square metre Anfa Place Shopping Centre in Morocco and Anadarko Building, an office block in Mozambique. It has since entered other markets such as Zambia, Kenya and Mauritius, managing a portfolio of largely retail properties worth US$249 million (R3.6 billion).

The acquisitions that Mara Delta concluded during the period include the Zimpeto Square, a shopping mall in Maputo Mozambique, a 50% share of the Kafubu Mall in Zambia, a 45.5% share of the Buffalo Mall in Kenya, and more.

Mara Delta planned its foray into Nigeria through an acquisition of an office complex with Pivotal Property Fund. But it ditched the plan due to sector heavyweight Redefine Properties’ bid for Pivotal.

The property counter has a pipeline of acquisition opportunities that are worth US$105 million and are expected to be concluded this year, including its foray into the hospitality sector, as Mara Delta is looking to acquire the Tamassa Resort in Mauritius on a lease-back basis. Corbett says management are on the prowl for opportunities in Uganda.

Perhaps working in Mara Delta’s favour is low borrowing costs in its targeted jurisdictions, which will be supportive of deal-making. Acquisition yields on properties are typically higher (11% to 12%) than debt funding costs (5%), while in South Africa, debt funding costs are higher than acquisition yields. Mara Delta’s loan to value was 48.85% during the period, in line with management’s range target of 45% to 50%.

Mara Delta is trading at a forward yield of 9% (in US dollars) and a discount to net asset value of 15%, which Anderson rates as attractive.

Mara Delta share graph

Mara Delta is expecting dividend growth to slow between 2% to 4% next year due to the redevelopment of its shopping mall.

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