Income streams for Growthpoint

• Property investment returns
• Management company distributions.

This year, Growthpoint Investec Africa Properties rebranded as Lango Real Estate and continued to emerge as a leading landlord in the African real estate market.

It gained ground on numerous fronts and built on its demonstrated track record of growth, with three minority-stake acquisitions during its financial year and a fourth in April 2021. These accretive acquisitions have substantially offset the adverse financial impact, in part due to the pandemic, on asset valuations.

Lango has complete management control of a portfolio of 11 underlying assets, which includes prime office and retail properties across four countries. It has now reached a degree of critical mass and, with a high-quality asset portfolio and strong stakeholder base, is well-positioned for a potentially exciting period of growth.

Lango has established a reputation as a credible player in the African real estate market and has strategically positioned itself as a platform for attracting sophisticated international investor capital into the asset class. It also strives to act as a catalyst for impact across the continent, with associated long-term socio-economic benefits.

One of the company's primary strategies during the year was to refine its capital structure, and these efforts resulted in a portfolio refinancing transaction worth more than USD300m that fully restructured its underlying property debt.

The transaction, jointly financed by Standard Bank and RMB, has been touted as the largest real estate debt transaction in sub-Saharan Africa (excluding South Africa) and the first cross-collateralised and multi-jurisdictional portfolio real estate financing deal on the continent. The agreement has also simplified Lango's debt management activities and has been accretive to performance. It not only significantly reduced Lango's cost of debt, but substantially extended its debt maturity profile and harmonised various covenants across its portfolio. Lango achieved this through an innovative funding structure that saw individual asset-based debt packages effectively being converted into broad portfolio-based debt structures on far more competitive terms.

This debt restructuring initiative will lead to significant operational efficiencies for the business and is ultimately aimed at enhancing Lango's distributable income.

The past financial year will undoubtedly be remembered for the challenges brought about by Covid-19, but the pandemic also highlighted the invaluable benefits of Lango's diversified portfolio. While the situation further induced macro-economic headwinds and resulted in a challenging operating environment, particularly in the retail sector, the company's strategic portfolio composition – with assets located across several jurisdictions, key cities, and property sectors – enabled it to absorb the impact, which manifested in different countries at different times, and was met with varying regulations. Furthermore, the countries in which Lango invests were fortunate to have been less severely impacted than many others.

Lango's majority exposure to quality office assets – in many cases with large international tenants – and a minority exposure to retail also contributed to its reduced risk.

One silver lining to the pandemic was that it presented opportunities for more direct tenant interaction and highlighted the value of partnerships. Having Lango people on the ground also made a significant difference. Cash collections for the financial year were robust, with 95% of billable income collected.

Management continues to focus on detailed expense and arrears management and the company remains proactive in leasing and tenant management, with several such initiatives being undertaken. Encouragingly, Lango has received numerous new leasing enquiries – including several from blue-chip business tenants – particularly within Ghana's office sector.

The liquidity and convertibility of local currency into USD in Nigeria has become difficult to execute in the wake of Covid-19 and the drastic reduction in the oil price. However, current indications are that this will improve as the oil price rises again. Liquidity is also less of an issue in the other countries where Lango is invested.

Looting and property damage following widespread social unrest in Lagos, Nigeria, in late October 2020 saw many assets affected, including Circle Mall. A full re-instatement process is currently underway.

Despite the challenges resulting from the global pandemic, one cannot ignore the favourable long-term demographics and projected economic growth of the region.

A second fundraising period post Lango's FY21 commenced in May 2021. Proceeds raised in this drive are expected to be allocated to marginally reducing Lango's underlying quantum of debt, and to a potential new asset pipeline that aims to further diversify and enhance the company's overall portfolio of assets.

Asset allocation

Lango is focused on investing in prime, income-producing commercial real estate assets in key nodes and cities across Africa, with the aim of generating compelling and sustainable investor returns. Exposure across the retail, office and industrial sectors is underpinned by rental growth from top-tier tenants. This diversified exposure creates a more balanced and riskenhanced portfolio and allows for the potential extraction of long-term diversification benefits that are supported by the continued rapid urbanisation rates and economic growth across the continent.

Deal flow

An extensive network of partner relationships and proprietary deal access from property developers across Africa contribute to Lango's deal flow and gives the company access to a significant asset pipeline that is diversified across countries and sectors.

Furthermore, the restructuring of the company's debt finance, supported by its funding partners and a planned second fundraising initiative in FY22, enhances Lango's ability to continue its growth trajectory and further entrench itself as a leading player in the African real estate market. This restructuring also creates a funding platform that is expected to increase future distributions and stakeholder value.

Target

Liquidity for investors will be catalysed through a stock exchange listing, most likely on the London Stock Exchange with a secondary listing on the Johannesburg Stock Exchange. This will be achieved once the fund has attained a NAV of USD750m, and by no later than March 2026.

FY21 contribution to Growthpoint

Lango's maiden USD1.6m distribution to shareholders was made in December 2020, and a final USD1.3m dividend in respect of FY21 (to end-March 2021), in June 2021. From distributable income of US17.92c per share, Growthpoint received USD457 853.

Prioritising Lango's distributions to shareholders remains central to it building a sound track record, and doing so well-ahead of its planned listing and IPO process. It is Lango's intention to continue to declare six-monthly dividends and it estimates an annual 5% to 8% dividend yield.