CHALLENGE BELIEF - JSE MAGAZINE

CHALLENGE BELIEF

Grit Real Estate Income Group, formerly Mara Delta, has rebranded after raising $121 million in capital

Mara Delta Property Holdings, the first African-focused property fund listed on both the Stock Exchange of Mauritius (SEM) and the JSE, recently unveiled its new corporate identity following its name-change to Grit Real Estate Income Group Limited. ‘The new brand positioning captures the group’s entrepreneurial and determined spirit and our ambitions for growth in Africa while entrenching international appeal and stature,’ says Bronwyn Corbett, the company’s CEO.

‘Grit has experienced substantial growth over the last few years, and has set even bolder growth ambitions for the near future, including listing on the London Stock Exchange.

‘We have recently completed a $121 million capital raise to mainly settle pipeline acquisitions. This will boost our asset portfolio to over $600 million in value. We believe that Grit must deliver a balance of international gravitas to investors while ensuring African credibility and authenticity,’ she says.

THE FINAL FRONTIER
Africa is still very much regarded as the Cinderella of real-estate investment although perceptions of the continent are changing. The number one fallacy is to view the continent as a country. In the global search for growth, investors have learnt to appreciate the different business nuances, economic drivers, risks and opportunities inherent to each country in Africa.

Although some countries on the continent are still dependent on extraction economies, there has been increased diversification and in-country beneficiation, which have led to economic growth.

Political and economic stability has been steadily improving in the decade following the global financial crisis, which in turn has attracted foreign direct investment – also into real-estate development and ownership. Most countries on the continent only gained independence after 1960, which – relatively speaking – leaves a very short track record to date.

The UN predicts that in a little more than 30 years, one in four people globally will live in Africa. On top of that, according to the IMF, real GDP growth in sub-Saharan Africa averaged 4.7% annually over the past 20 years (as reported in 2016), compared to 4.2% in the Middle East and North Africa (MENA) and 2.1% for so-called advanced economies.

Combined with its young and growing consumer base and continued urbanisation (which is expected to drive more than 50% of Africans to cities by 2050, compared to 40% today, as cited by African Economic Outlook), Africa is indeed the last frontier for growth. This provides investors with a very large and expanding ‘basic needs’ consumer base.

Infrastructure and real estate must be adapted to suit these needs. Real-estate investors have learnt that one can’t approach rest of the continent with a SA or Western mindset of ‘bigger is better.’

EXPANSION ROUTE
In the relatively short time since listing, Grit has established a strong footprint across strategic territories on the African continent, with a view to expand into more markets.

Since listing on the JSE, the company has increased its assets from two buildings – the Anadarko office block in Maputo, Mozambique and Anfaplace Shopping Centre in Casablanca, Morocco, with a combined value of $140 million – to 19 properties across five countries, including Zambia, Kenya and Mauritius, with a gross asset value of more than $600 million.

Grit also holds two primary listings, one the JSE and the other on the SEM. ‘Real estate on the continent outside of South Africa is not yet deep enough for sector specialisation, hence we’re completely asset agnostic when it comes to asset class. Our focus has always been on the strength of counterparties and the ability of our anchor tenants to transact in hard currency,’ says Corbett.

‘We are therefore particularly proud of our partnership with some of the largest and most reputable operators on the continent, including Beachcomber and Lux Resorts, Imperial, Vodacom, Carrefour and others.’

To date, Grit has paid out six consecutive US dollar distributions to shareholders. Corbett is quick to point out that although Grit distributes similarly to a REIT, it pays tax in-country.

‘Shareholders therefore pay a dividend withholding tax of 20% on their distributions, as opposed to a REIT distribution that is taxed according to the shareholder’s income tax bracket,’ she says.

Listed property has always been regarded as a relatively low-risk investment. Given the see-through and longer-term predictability of earnings, the asset class provides investors with a much more stable earnings profile than other equity classes, and its exposure to interest rates makes listed property a proxy for bonds.

The combination of a relatively high-income yield, hard currency rental income and inflation-beating distribution and capital growth allows investors the opportunity to maximise total returns through time. Instead of merely relying on capital appreciation or an income yield to generate their returns, investors in listed property can enjoy both sources of return as well as the benefits of compounding the income, if it is reinvested and not consumed.

While Africa remains the undeserved Cinderella of real-estate investment, it offers attractive opportunities for those with the know-how, tenacity and patience to look beyond the surface. ‘There will be a strong focus on growing the net-asset value of the business, bedding down our pipeline acquisitions and increasing liquidity in the company,’ says Corbett.

‘We now have critical mass and anticipate raising capital less regularly in the market’

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