Another Scramble for African property assets

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Another Scramble for African property assets

There is a scramble for African property assets as investors look to gain first mover advantage in the continent.

Africa Property News.com Media Director, Ortneil Kutama believes the diminishing availability of retail assets in South Africa has given property groups an opportunity to spread their wings.

Even analysts agree that listed property groups should turn their attention to the rest of the continent. Africa is a fast-growing continent with a large middle class.

“Many of these new entrants are South African listed property funds, which are looking for growth opportunities, having struggled to find new ones in SA this year,” Kutama says.

The most important African deal this year is the merger of Delta Africa and The Pivotal Fund’s Mara African fund. Mara Delta will have about US$458m worth of assets under its control.

Mara Delta is carefully developing a strong team, which will bring returns to investors over a gradual period.

The Pivotal fund, which was created by Abland, a property developer, had initially planned to list Mara Diversified Property Holdings, which is the official name of the Mara fund separately on the JSE, but then decided to opt for a merger with Delta Africa.

Pivotal was listed in December last year. Since then Abland has launched a development business on the continent called Abland Africa.

Delta Africa will retain its primary listings on the JSE and Stock Exchange of Mauritius, but will be renamed Mara Delta.

“This deal is massive for Delta Africa. It more or less doubles our size and exposes us to a new pipeline of properties. Delta Africa as Mara Delta will be uniquely positioned with economies of scale to consolidate a number of these opportunities on the continent,” said Delta Africa CEO Bronwyn Corbett.

As part of the Mara Delta agreement, Abland Africa, Kenyan developer Carlisle Property Holdings and investment company Mara Group will be appointed as promoters to source investment and development opportunities across the continent for Mara Delta.

“The larger company will have an additional strong anchor shareholder in Pivotal, access to a considerable acquisition and development pipeline through Abland Africa and other promoters as well as the track record and expertise to draw on local knowledge and experience,” Ms Corbett says.

Africa does offer opportunities but property companies have learned that large teams are needed for these opportunities to work.

“Although quite a few African economies offer good growth opportunities, there are ongoing regulatory and fiscal challenges. Lower commodity prices have also impacted the economies relying on these to generate foreign inflows.

This has made accessing foreign currency in these markets a challenge,” Gerhard Zeelie, Head: Real Estate Finance, Rest of Africa at Standard Bank said.

Delta Africa had struggled to get off the ground in Africa. Finding deals took ages and the group also needed a larger portfolio of assets from the get go to attract investors.

Another South African company which is chasing opportunities through a less risky strategy is Hyprop Investments. Hyprop’s strategy to partner with other funds makes them avoid development risk. It will also buy from private equity firms who have built developments in Africa and are looking to exit those developments.

Hyprop announced that it had bought Ikeja City Mall together with Capital growth company, Attacq which is the largest shopping centre in Lagos, Nigeria.

Hyprop has been looking for a quality investment in Nigeria for a couple of years. Listed property groups were struggling to find acquisition opportunities available in SA, especially in 2015.

The deal marked an exit from the mall for private equity group Actis, real estate developer RMB Westport and Nigerian investor group, Paragon Holdings. It turns out is Hyprop’s maiden investment in Nigeria, with the fund spending roughly $68m for its 75% interest in the mall. Attacq would pay $23m for its 25% stake.

The 22,000m² mall is located in Ikeja, a large suburb with a population of 4.5-million. It is anchored by Shoprite and includes South African brands Mr Price, Spur, MTN and Markham, and international brands such as Nike, TM Lewin, Lacoste, Mano, Tommy Hilfiger, i-Store, KFC and Max Fashion.

Hyprop is also building a portfolio of shopping centres in other African countries, including Ghana and Zambia. It is pleasing that the company is tending to buy these at a very careful pace, instead of trying to develop new malls on the continent, which can be highly risky.

This is especially so when companies in these countries normally require dollar-based financing and the rand is weak, meaning doing business in these countries is very expensive for South Africans.

Attacq also has exposure to Mozambique and Mauritius.

Recently Old Mutual Investment Group announced that it was interested in buying and seeks to invest US$18m-$37m acquiring property assets in east and West Africa.

Resilient Property Income Fund is also building malls in Africa but in Nigeria this is through Resilient Africa.

CEO, Des de Beer says Africa is a logical next frontier for Resilient. Resilient and its joint-venture partner Standard Bank are working in five malls in Nigeria, having committed over R1.5bn to the fast growing African country.

“We are gaining traction with our pipeline of developments in Nigeria, hence the additional capital that we invest,” Mr De Beer said.

Analysts say they like that Resilient will get dollar-denominated returns from the properties in Nigeria. Resilient has opened an office in Ikoji, Nigeria.

Growthpoint Properties, SA’s biggest listed property fund is also entering Africa, albeit in a small way at first.

The company will partner with Investec as its asset manager who will source deals and manage projects.

Growthpoint will also invest US$ 50m and the International Finance Corporation (IFC) $40m in the venture that will invest in and develop property in Africa.

STANLIB recently received regulatory approval from the Kenya Capital Markets Authority (CMA) to launch East Africa’s first Income Real Estate Investment Trust (I-REIT).

“Interestingly, we have seen increased interest in the rest of Africa in the last few weeks to months. SA Corporate is buying Zambian assets and Liberty is listing a Kenyan REIT soon. We think it’s the best time to be buying assets given the downbeat mood in the continent at present.

We like the long-term story. We believe that the continent has pretty amazing prospects for patient investors.” says Stanlib’s head of listed property funds, Keillen Ndlovu.

“Clearly Africa has become an attractive place for African investors. Nigerian companies, Kenyan companies and Rwandan companies are also developing various properties, many of them malls in a continent with low retail penetration but many eager shoppers,” Kutama says.

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