Bronwyn Corbett: Formidable track record. Picture: Supplied
Bronwyn Corbett: Formidable track record. Picture: Supplied

Bronwyn Corbett has had a tough task of late in selling the Africa investment case to local fund managers. The chartered accountant, who co-founded Grit Real Estate Income Fund in 2012 (initially as Delta International), is one of just a handful of SA property players still chasing the African growth story.

Many other JSE-listed companies that dipped their toes into the real estate markets of Zambia, Ghana, Nigeria, Kenya and Mozambique over the past decade have either ditched further development plans or are exiting these countries altogether. They include Hyprop Investments, Attacq, Tradehold and Resilient Reit.

That comes on the back of large property valuation knocks many have had to take in their African portfolios in the aftermath of the 2015/2016 oil and commodity price crash, the continent’s dimmer GDP growth outlook, ongoing political uncertainty and currency volatility.

But Corbett has no plans to follow suit.

In fact, she’s using the downturn, and thus softer property prices, to grow Grit’s footprint across various African countries.

And though SA investors’ enthusiasm for the rest of Africa may have waned, their UK counterparts are seemingly still happy to back Grit’s expansion trial.

At the company’s interim results presentation last week Corbett said UK fund managers have increased their exposure to Grit from 12% to just less than 30% since the company listed on the London Stock Exchange (LSE) at the end of July 2018.

"We see that the UK is where most of the future growth in our shareholder base will come from," she said.

Corbett is now considering delisting Grit — the JSE’s only African-focused property play — from the local stock exchange.

Grit has a third listing, on the Stock Exchange of Mauritius. Maintaining all these listings is a costly exercise and creates a complex capital structure, says Corbett.

"Besides, the [pool of] investors that hold shares in Grit via the JSE have become smaller over time, which creates liquidity constraints. The rand exchange rate is another issue."

The potential delisting won’t affect Grit’s investment strategy. Corbett argues that its investment case has always been driven by the strength of its counterparty leases.

"It remains critical for us to secure long-term leases with multinational tenants that pay rent in hard currencies," she says.

Most of the company’s 46 properties — 94% of its revenue stream — are let to multinational tenants that pay rent in dollars or euro. These include hotels leased to Beachcomber, Lux Tamassa and Club Med, offices and mixed-use premises leased to corporate tenants such as telecoms giant Vodacom and oil and gas exploration companies Total and Exxon Mobil, and retail tenants Shoprite and Game/Massmart.

Grit’s seven shopping centres include Anfaplace Mall in Casablanca, Morocco, Mukuba Mall in Zambia and Buffalo Mall in Kenya. Grit also leases a large residential estate to the US embassy in Mozambique.

Corbett mitigates risk by balancing exposure to high-growth African countries (such as Ghana, Kenya and Mozambique) with what she refers to as "investment-grade" African countries — typically more stable, established economies such as Morocco, Mauritius and Botswana.

The company recently entered Senegal, where it bought a hotel leased to Club Med.

Corbett says the fact that there are now fewer property developers and buyers active in the rest of Africa than five years ago gives Grit the opportunity to bulk up its presence in targeted countries at what she believes is the bottom of the market.

"We have already created a robust platform in several African countries. So we now have the economies of scale to start controlling the real estate cycle in these markets."

Corbett hopes to leverage the recent Club Med hotel acquisition in Senegal to become the French-headquartered hospitality group’s preferred real estate partner in other African countries.

Hers is a formidable track record: over the past 2½ years alone, Corbett has nearly doubled Grit’s asset value, from $488.5m to $860m.

A further $470m worth of new developments and acquisitions are already in the pipeline. These will be funded partly by selling some of the company’s shopping centres.

Corbett says Grit is on track to deliver its targeted 12% dollar-based total return (income and capital growth) for the year ending June, which UK investors seemingly view as an acceptable risk-adjusted profit.

Nicholas Hooper, director of UK-based multifamily wealth management firm London Investment Management, says: "We view Grit as a key component of our global diversification."

Still, Grit’s share price has not been immune from the local listed property malaise, and it’s down 15% over the past year.

But Hooper says that’s created a lower entry point for new investors at an attractive dollar-based dividend yield of about 10%.

One of the key metrics Grit’s management team has delivered on in the interim reporting period to December is to reduce the average cost of debt from 6.44% to 6.07%. "That shows confidence in their lenders," Hooper says. Other positives are that Grit increased its lettable space by 20% and grew rentals by 2.7%.

However, Hooper also highlights a few negatives: EPS were down sharply from $7.07 to $4.26 (primarily due to lower retail valuations and retail tenant arrears), the weighted average lease expiry dropped to 4.7 years from 6.7 years and the loan-to-value (LTV) moved higher, from 43.4% to 43.9%.

But he adds: "Given that Grit’s properties are 97% occupied, 94% of rentals are paid in hard currency and it has a strong and energetic management, we continue to support this team."

Garreth Elston, chief investment officer at Cape Town-based fund manager Reitway Global, says Grit has made good headway to deliver on its growth promises.

Management has also worked hard to dispel scepticism among South Africans about Africa’s merits as an investment destination, "but with limited success", Elston says.

He believes that’s because negative sentiment towards the rest of the continent is quite deeply entrenched, with many still regarding Africa as a high-risk gamble.

He says company-specific concerns include rising operating costs, LTV levels that are still high as well as low liquidity, which is especially an issue for institutional investors.

He says: "Liquidity can only really be addressed by growing Grit’s investor base and assets. The London listing has definitely helped and it should continue to improve with time."

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