Regular readers will know that I have soft spot for all things African and frontiers market-based. My hunch is that Sub Saharan Africa represents one of the last proper frontier markets where real money can be made by careful stockpickers. I’m not going to bother rehashing all the old macro stories about growth potential and the rise of the African consumer. I’d simply sum it up by saying that Africa represents a huge opportunity for the really adventurous.
The problem is how to access the story. In the past, I’ve been a big fan of a specialist investment trust called African Opportunity Fund which is well managed but largely unloved. Unfortunately, AOF has had its fair share of problems, which should act as a warning – if even a smart locally run fund such as AOF can fall foul of local market idiosyncrasies, god knows what the risks are for a London based investor.
All of which brings me nicely to a new real estate investment trust which has just listed on the London market. Its called GRIT Real Estate Income and it’s just raised $132.1m through a placing of 92.374m ordinary shares at $1.43 per share, equivalent to the EPRA NAV at 31 March. According to Numis the “new shares, as well as the company’s existing 214.02m shares, will start trading on the Main Market of the London SE on 31 July with a standard listing under the ticker “GR1T”. The existing listings on the Mauritian and Johannesburg SE will continue.
GRIT Real Estate Income invests in real estate in pre-selected African countries (excluding South Africa), typically underpinned by predominantly US$ and Euro denominated long-term leases with high quality, often multi-national tenants, delivering strong and sustainable income. GRIT is targeting a total return of c.12.0% pa in US$ terms and is targeting a dividend in relation to the six months ended 30 June 2018 of c.$5.9c per share, equivalent to an annualised yield of 8.25% on the issue price. The dividend is expected to grow at 3-5% pa.
In portfolio terms there are “22 properties with a total value of $588.4m,” Numis reports “the majority of which is in the Retail (38%), Commercial (26%) and Hospitality (24%) sectors. By country, Mozambique (35%), Mauritius (27%), Morocco (16%) and Zambia (15%) are the main regions. The portfolio generates a blended yield of 8.1% with a weighted average lease length of 6.5 years. Loan to value stands at 46.7%, with a weighted average cost of debt of 5.7% pa. Occupancy is 97.3%”. The $132m of extra cash raised will be used to buy to acquire assets in Ghana and Mozambique, as well as to reduce the overall level of gearing to 35-40% LTV.
This for me looks like an ideal way to play the African growth story. You get:
- A diversified range of national markets, especially fast-growing ones such as Mozambique, and Ghana
- Asset backing from high-quality property, with most of the client’s high-end global businesses or pan African outfits
- A more than decent dividend yield of 8.25%
- An experienced management team who’ve already got the experience of working with public markets in South Africa
- Low loan to value ratios which should offer some comfort if ever there was a squeeze on global capital inflows into the region
So, on balance I think this REIT looks like an excellent adventurous bet on Frontier markets. Buy.