Growthpoint Investec African Properties sees IPO opportunity
However, Thomas Reilly said the company must first build a substantial scale to its assets.
Investors across the rest of Africa have limited options for investing in publicly traded real estate companies that focus purely on the continent.
Johannesburg Stock Exchange-listed Grit Real Estate is probably the only substantial Africa-focused company, which owns real estate assets in Mozambique, Mauritius, Zambia, Ghana, Morocco and Kenya that are worth $796.4 million.
However, the real estate market in Africa has been populated by shopping centre and office towers development-type real estate companies that are privately owned. This gives investors – who want exposure beyond South Africa’s mature real estate market– limited options. However, this might change soon, if pan-African real estate company Growthpoint Investec African Properties has its way.
After acquiring its first real estate asset in the form of a Ghana-based shopping centre this week, Growthpoint Investec African Properties is considering an initial public offering (IPO).
In an interview with M&A Africa, Thomas Reilly (pictured), the MD of Growthpoint Investec African Properties, said the company might consider an IPO in South Africa or London (where Thomas is based) in the next few years. But there’s a proviso.
Thomas said Growthpoint Investec African Properties will only consider an IPO when the value of its real estate assets reaches or surpasses $750-million.
“For any IPO to work, investors want a real estate company that has scale to its portfolio of assets, which will allow liquidity to our company’s shares on any stock exchange,” he told M&A Africa.
Growthpoint Investec African Properties was founded more than three-and-a-half years ago when Johannesburg Stock Exchange-listed real estate company Growthpoint and Investec Asset Management announced their pan-African real estate investment joint venture. The joint venture was backed by the World Bank’s International Finance Corporation.
The delay in buying assets was linked to difficulties in raising capital among institutional investors and finding quality assets to purchase. This week, Growthpoint Investec African Properties announced its first deal as it acquired a 97.5 percent stake in Achimota Retail Centre, a prime shopping centre in Accra, Ghana. The Achimota centre comprises about 15 000 m2 of retail space, which is occupied by more than 50 retailers, including Game, Shoprite, Mr Price, Pizza Hut and KFC. The asset was acquired from AttAfrica, which is a joint venture between Johannesburg Stock Exchange-listed real estate companies Attacq and Hyprop Investments, with other smaller stakeholders.
A successful IPO would see Growthpoint Investec African Properties join Grit Real Estate on a public exchange and compete with it for investor capital. Thomas said Growthpoint Investec African Properties could easily build scale to its property portfolio because the company is “seeing a lot of acquisition opportunities across the rest of Africa.”
Growthpoint Investec African Properties is targeting real estate assets such as shopping centres, office towers, and industrial properties/warehouses in west African countries such as Ghana and Nigeria and southern Zambia, which Thomas said they “are hard to ignore.”
The year 2015 was a turning point for many sub-Saharan Africa economies that relied heavily on the production and export of commodities for their fortunes. Africa’s largest commodity producers and exporters such as Nigeria, Angola, Equatorial Guinea and Algeria, whose oil proceeds account for more than 70 percent of exports, were hit the hardest and faced serious economic headwinds due to low commodity prices. However, most of these countries are on a path towards economic recovery as commodity prices have rebounded.
“And because of the recovery in commodity prices, we are seeing a lot of acquisition opportunities in the market. We need to go where the opportunities are and where the prospects in terms of growth are looking good,” said Thomas. “We are focusing on key gateway cities and landmark-type of assets, where major international tenants would have a local country or regional presence. This would allow us to have the world’s best tenants in our properties and a higher quality of rental income.”
Growthpoint Investec African Properties will be generating rental income across its property portfolio in hard-currency or US dollars to be specific. Thomas said returns on assets (in dollar terms) are still attractive because landlords can achieve returns of between 15 percent and 18 percent on a gross basis.
“It’s an attractive return. Africa is not without its risk. But I think to an extent that one should have a team that is based on the ground and is able to manage those risk properly, we believe that the risk-reward ratio is well intact.”
A second acquisition, which is based in Zambia, is expected to be finalised by Growthpoint Investec African Properties within the next month.
Asked about valuations of assets, Thomas said Growthpoint Investec African Properties assets in various sub-Saharan Africa markets are being sold at a discount because many private equity funds are exiting their real estate investments as per their investment period mandate. This means that real estate assets are being offloaded by private equity funds.