Hyprop to exit sub-Saharan Africa, but Grit Real Estate stays put

Although quite a few African economies offer good growth opportunities, there are ongoing regulatory and fiscal challenges, says Ortneil Kutama

While Attacq, famous for developing one of SA’s largest retail centres, Mall of Africa, and Hyprop investments, the owner of some of the best rated shopping centres, are trying to divest from the African continent, Grit Real Estate is spreading itself across the continent.

JSE-listed Hyprop which owns the likes of Rosebank Mall, Clearwater Mall and Canal Walk in SA wants to sell its stake in AttAfrica. This comes after its Nigerian and Ghanaian property portfolio displayed lacklustre performance in the half year results which ended December 2018.

Hyprop has exposure to five malls across three African countries in partnership with JSE listed real estate investment trust, Attacq and developer, Atterbury. The joint venture runs as AttAfrica Limited based in Mauritius.

Understandably adopting a more cautious view on the outlook for Africa as a real estate investment destination, given that several SA property players that have entered the continent over the past five years got burnt on the back of the sharp oil and commodity price slump and currency crises that hit a number of countries in 2015/2016.

Attacq and Resilient Reit, among others, have all reported impairments on their shopping centre portfolios in Nigeria, Ghana and Zambia in the past year or two as higher vacancies and negative rental reversions placed pressure on valuations.

"Although quite a few African economies offer good growth opportunities, there are ongoing regulatory and fiscal challenges. Lower commodity prices have also impacted the economies relying on these to generate foreign inflows. This has made accessing foreign currency in these markets a challenge," said Ortneil Kutama, Africa Property News Media Director. .

But Grit Real Estate, the JSE’s only Africa-focused property play remains committed to the continent even as others are looking to exit. Its CEO, Bronwyn Corbett and her team have set up a base in Africa, over a period which took more than five years. The company owns around US800m worth of property spread across Morocco, Botswana, Ghana, Kenya, Mauritius, Zambia and Mozambique.

Unlike their SA counterparts, it seems that UK investors didn’t need much convincing to buy into the African growth story. UK fund managers have already increased their exposure to Grit from 12% to 20% since the Africa-focused company’s listing on the main market of the London Stock Exchange (LSE) at the end of July 2018.

There are countries in which Grit has not invested and these include the likes of Nigeria, Zimbabwe, DRC, Angola and Ethiopia. Investors in Nigeria, which is Africa’s largest economy, have struggled to get their money out of the country. Zimbabwe wants to change from the US dollar to a new currency which has created uncertainty and led to a fall in values of assets in the sub Saharan country.

“From the outset, we’ve deliberately avoided countries that were experiencing a boom economy, which were mostly resources dependent. Grit’s objective is to partner with blue chip multinationals on their corporate accommodation needs across the continent, and therefore we’ve been very selective of the tenants we engage with. This forms a very important part of our risk mitigation strategy," Corbett said.

Corbett has grown Grit’s assets under management nearly fourfold since 2012, from $220m to about $800m. The company is also looking to invest $160m this year to buy two or three more hotels in Mauritius and, potentially, nearby Reunion Island.

Hyprop decided Africa isn’t working as such the fund will not invest in the continent further as it believes it can be more successful in south eastern Europe where it co-owns malls in a partnership with Hystead Limited.

Attacq has decided to stop buying more assets in Africa because it hasn’t been able to generate good enough returns from its assets on the continent. The company’s management believes it can better use its funds developing Waterfall City wherein the Mall of Africa is situated.

So who will buy AttAfrica’s assets? Grit stands out as a potential buyer. However, Grit likes to buy office assets in Africa which have one or two tenants signed to long term leases. It also tends to buy hotel assets which have long term leases signed to international operators.

“We are also selective of the assets we acquire in a particular country. Some economies lend itself better to corporate offices, others to hospitality and others to corporate accommodation. In this regard Grit is asset agnostic, again focusing on the counter party, quality and tenure of the lease as opposed to a specific asset class," Corbett said.

SA’s largest listed property fund, Growthpoint Properties may also take an interest in AttAfrica’s assets. The company has committed itself to investing on the continent and has funding and debt facilities available, but it is yet to buy any assets. Group CEO Norbert Sasse says Growthpoint which owns assets worth more than R100bn is interested in diversifying and growing its income streams.

It already invests in Poland and Romania through its investment in Globalworth and in Australia through Growthpoint Australia. In its recent results for the six months to December, it highlighted that offshore investments had actually been responsible for most of the growth in its earnings and dividend.

But it will invest in Africa cautiously as it it likely to spend less than R1bn there in 2019.