SA’s PIC plans African property investment drive

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Head of the Public Investment Corporation (PIC), Lesiba Maloba says given the shortage of existing stock in most African countries, the PIC is looking to partner SA developers, institutions and retailers to develop new properties. Head of the Public Investment Corporation (PIC), Lesiba Maloba says given the shortage of existing stock in most African countries, the PIC is looking to partner SA developers, institutions and retailers to develop new properties.

South Africa’s Public Investment Corporation (PIC) is awaiting final approval to invest up to R12 billion in commercial real estate in various countries across Africa, the PIC’s first foray into property markets outside SA’s borders.

PIC recently overtook JSE-listed Growthpoint Properties as the biggest player in the SA commercial property space, with real estate assets under management now at a colossal R62,5bn at March 31. That’s up from R25,7bn four years ago.

Maloba says given the shortage of existing stock in most African countries, the PIC is looking to partner SA developers, institutions and retailers to develop new properties. “We don’t want to be a passive investor in a property fund. We prefer to be involved directly on an operational basis.’’

But Maloba concedes that Africa is still “virgin territory”, with such vast potential that the PIC’s African investment strategy is not yet set in stone.

The PIC has stakes in some of the biggest malls in SA including Sandton City, the V&A Waterfront and Cavendish Square in Cape Town, Menlyn Park shopping centre in Pretoria as well as a portfolio of 25 rural and township centres.

The portfolio, comprising mostly properties owned by the Government Employees Pension Fund (GEPF), has grown 22% since January 2012 alone.

But much of the recent growth has come from the PIC’s listed real estate portfolio. The PIC owns sizeable stakes in most of the JSE’s 30 listed property counters.

The sector was up nearly 40% in the 12 months to May 20 but dropped around 16% over the past two weeks. The PIC’s listed portfolio was valued at R29bn at March 31. Property now comprises around 5% of the PIC’s R1,25trillion in assets under management, up from around 2% in 2008.

The GEPF’s mandate allows property to grow to around 7% of total assets. That means an additional R24bn could potentially be allocated to real estate over the next few years. But Maloba is not interested in bulking up his portfolio at any cost. He says the PIC won’t overpay for assets.

“Listed players, who are growing portfolios aggressively, are chasing yields of prime properties down which has made it very expensive for unlisted players like the PIC to compete for deals.’’

Maloba refers to some recent key acquisitions such as the Somerset Mall by Hyprop Investments and the East Rand Mall by Redefine Properties and Vukile Property Fund at record low yields (annual rental income as a percentage of the purchase price) of less than 7%.

Maloba says listed funds, unlike unlisted investors, can afford to buy at these yields without diluting earnings. “We are not prepared to pay those sorts of yields.’’

Maloba sees better value in investing in new developments and refurbishments and extensions of existing properties. But most of the growth in the PIC’s property portfolio over the next 5-10 years will come from the PIC’s planned entry into burgeoning African real estate markets.

The PIC’s proposed push into Africa follows that of SA pension fund managers such as Sanlam and Liberty (through Stanlib).

In fact, Sanlam three weeks ago listed its sub-Saharan Africa Real Estate Fund on the Stock Exchange of Mauritius. Sanlam Africa fund adviser CE Thomas Reilly says the fund is the first hard currency income play available to SA investors who want to tap into the growth potential offered by sub-Saharan African property markets.

An initial US100m was raised before the listing among mostly SA institutional investors. The fund’s first property acquisition was a stake in the Accra Mall in Ghana together with SA developer Atterbury. Reilly recently added four A-grade office tower blocks in the heart of Dar es Salaam in Tanzania to the portfolio, which was acquired at a yield of an attractive 9% (in dollars).

Reilly is already looking at a pipeline of potential deals worth more than US1bn in Kenya, Nigeria, Zambia and Mozambique. He hopes to grow the fund to $500m within the next three years. The fund is targeting a total annual dollar return of 14%-18%.



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