This London-listed Reit lets you invest in the growing consumer markets of an exciting continent.
Africa is undergoing a renaissance. Since the turn of the century, the region has averaged economic growth of 5.1% a year, according to the International Monetary Fund. It's a young continent, with huge resource wealth, liberalising economies and expanding consumer markets. These are high-risk growth areas where investors can play megatrends such as urbanisation and growing consumer demand by focusing on property assets in countries such as Mauritius, Ghana, Mozambique and Zambia.
The trick is to have an experienced team of property specialists who can navigate their way around distinct regional markets and choose the right cities. This brings me nicely to the Grit Real Estate Income Group (LSE: GR1T), which has just raised $132.1m in a share placing. The real-estate investment trust (Reit) has been trading on the South African and Mauritius stockmarkets for many years, and following the recent placing it trades on the UK market too.
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GR1T is targeting a total return of roughly 12% a year in US dollar terms, and a dividend of about 5.9 cents per share for the six months ended 30 June 2018, equivalent to an annualised yield of 8.25% on the issue price. The dividend is expected to grow at 3% to 5% per year.
Inside the portfolio, the weighted average lease expiry is around 6.5 years. This is a bit low compared with many developed markets, but local economies are growing much faster. The weighted average cost of debt capital has declined recently and is running at 5.7% per year (with most debt expiring after 2022), compared with the weighted average property yield of 8.1%. The overall loan-to-value ratio is 46%, though after the issue of new shares, that ratio is likely to fall below 40%.
Portfolio occupancy is currently running at 97%, with 66% of the value of leases accounted for by multinational tenants such as Vodafone, Beachcomber Hotels & Resorts and Shoprite. The average annual rent escalation is running at about 3.4% per year. Geographically, Mauritius is at 27% by value, Mozambique at 34%, with Zambia and Morocco at 15%. The existing portfolio of properties is made up of 22 buildings, of which seven are retail, six commercial offices and four hotels.
By listing on the London market, the Reit has raised extra capital. Some will be used to reduce debt, but most of it will fund expansion mainly into Ghana, an excellent growth market. After the new listing and deployment of extra capital, Ghana is likely to make up 16% of the portfolio, with three new office blocks in Accra, the capital. Money is also going into a new office development in Mozambique, with the US Department of State as tenant.
I think that investors in property funds should have some limited geographical diversification, mainly in Europe but to a lesser degree also in more exotic markets. This Reit ticks all the boxes and could form a small holding within a diversified property funds portfolio say, 1% to 5%. I'll certainly be buying some shares. Just keep in mind that this is Africa, where policy risk is huge, and foreign-exchange risk always present.
Local economies can rely too much on commodities and may be extremely volatile. But the 8% yield is a reflection of this risk, and I think adequate compensation for adventurous investors. This newly listed, but operationally well-established business is a core buy for any adventurous British investor.
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David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire.
He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
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