Mara Delta asset base expands (Bronwyn Corbett speaks to BDTV)

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Mara Delta asset base expands (Bronwyn Corbett speaks to BDTV)

12:17 CAT | 08 Sep 2016

in file Club of Mozambique

BUSINESS DAY TV: Mara Delta has reported a 4.1% growth in distribution (tape break) …while a strong dollar position in Mozambique helped it achieve realized foreign currency gains of $3.4m in that region. The Pan African property fund has now increased its asset base across five countries with acquisitions in Zambia, Mauritius and Kenya.

Joining me in the News Leader studio is Bronwyn Corbett, CEO of Mara Delta. Bronwyn, perhaps we can firstly talk about the income increase that you saw. You talked about assets acquired, so new acquisitions but then you also talked about 10% yearly rent escalations at your Anfa Place shopping centre, which is in Morocco. Did you take all those escalations in one go and was that partly behind the 63% jump that we saw in income for the year?

BRONWYN CORBETT: How French law works, which obviously governs Morocco, is that every three years there is a 10% escalation so it’s not an annual escalation, but it happens every three years according to French contracts. So the growth in the income is predominantly around that. When we listed Mara Delta we were sitting at $150m. We are now sitting in excess of $250m with obviously the pipeline which takes us in excess of $360m. So the increased revenue you will continue to see in the next financial year as well so it’s very much dominated around our acquisitions.

BDTV: But then what was behind the 4.1% increase in distribution, is that existing properties that you’ve already had or was there some acquisitive activity behind that growth?

BC: Mostly its existing properties so the benefit that we get, that even though we’re signing hard currency leases, whether it be euros or dollars, we’re still seeing annual escalations. We are therefore still able to achieve 3%-5% annual escalations. That’s very much driven by those annual escalations (tape break) … benefits of looking at investing in Africa that even though … in Europe you’re still getting those annual escalations.

BDTV: Talking about the risks. Mozambique is a really interesting area and it’s an area in which Mara Delta is heavily exposed. You’ve got 45% of your geographical base in Mozambique and we know that the Mozambique economy is going through a bit of a torrid time. They’re in all sorts of trouble with the IMF, there are lots of things going wrong there. Why is it quite an important area for you that you continue to back prospective opportunities in that country?

BC: Yes, Mozambique is an interesting one and we’ve obviously invested heavily into Mozambique already and it’s really around our business strategy which is counterparty-counterparty and we’ve seen the success of it in Mozambique. So we have over $150m worth of investments. We hold the head office of Anadarko, the head offices of Vodacom, Hollard, KPMG and what we’ve seen is that we actually collect dollar rentals… [tape break]. So we’ve actually had no challenges with those particular assets because where the challenge comes is where you have meticals and you have to convert them to dollars because there is obviously a dollar liquidity issue. So we are actually getting the dollars and we’re able to move it out of Mozambique quite easily.

So again the reality of Africa is that these are frontier and emerging markets and there is always going to be a challenge with one or other of the economies. We take an investment committee view that over time we wouldn’t want to be more than 20% exposed to more than one jurisdiction with the intention of investing in probably about seven of the economies (tape break) … if you’ve got a strong counterparty when the economy hits a bit of a wobble you still have the ability to actually realise what you want to out of the real estate assets. So Vodacom has a 10+10 year lease. These guys are very firmly in the country. Are we still positive about Mozambique? We actually are. We deal with Anadarko, Bollore, Vale. These are guys that are heavily invested in the country and dealing with them on a personal level they still see a lot of traction in Mozambique.

It’s not going to be easy for the next two years, so that gives us opportunity (tape break) … assets like the Japanese embassy and American embassy where there were capped rates of 7% 12 months ago and we’ve seen those assets again at 10% yields. So because we’re invested in the economy already and because we’re obviously looking at the counterparty and we’re now seeing the ability to get maximum value out of transactions going forward.

BDTV: Do your funders buy this because one of the successes it seems of the years that you’ve raised fresh capital, but in going through your results you talked about, and it’s only a tiny portion of your asset base, but it’s a loan of about $3m odd, the short-term Mozambique debt you’ve extended to a 10-year debt at interest rates of 19.7% which is massive.

BC: Just talking about that, it is a metical facility so it obviously sits in meticals where we don’t have much exposure. With having the meticals facility we are able to operate and pay local expenses and local VAT. So it actually ends up being (tape break) … that’s why you’re seeing the dramatic foreign currency profit that’s come through. So for us, the banks are still looking at Mozambique for Mara Delta specifically.

We have extensive PRI (political risk insurance) cover in-country that doesn’t just cover terrorism but also covers dollar liquidity, expropriation of funds (tape break) … 1% of the asset which is actually quite a large cost but we’ve taken the view that being in these frontier emerging markets somewhere like Nigeria where you would probably not get the PRI cover right now just to give you an indication.

BDTV: Just explain what PRI cover is please.

BC: Its political risk insurance and often people just look at it from a terrorism perspective but you can actually extend that policy to cover liquidity. So what we do is (tape break) … secure our distribution out of a particular country like Mozambique and that policy we have in place. So we are still seeing a lot of banks … we’ve just done a facility with Nedbank into Mozambique and again backed by the PRI as well as the strength of the counterparty that’s sitting under that lease.

BDTV: We’ve spent the whole interview talking about Mozambique and you’ve said that you didn’t want any one jurisdiction to be more than 20% of your geographical base. You’re buying Zambia, Mauritius, Kenya and you’re looking at Uganda. How much money are you spending, or maybe which are the most interesting markets to you right now and what are the acquisition opportunities?

BC: Yes. Mauritius is a very interesting market. We are obviously domiciled out of Mauritius where our entire team is based. We’ve actually just bought our head office there. The Mauritian market has provided very good opportunity around hospitality. So we won’t get involved in the operating side of hospitality or hotels but we like a sale and lease-back opportunity so you would have seen an announcement for Tamassa which has the Lux counterparty which is a very strong one. That particular deal we’ve done on 10-year sale and leaseback (tape break) euro-dollar lease for that particular transaction. So that is a very sweet spot because you then don’t have the issue of these possibly going back to local currency, the rupee because these guys trade in euros.

So we’re seeing a lot of opportunity in Mauritius. If we convert the pipeline it will take Mauritius to about 30% of our portfolio so we’re quite excited about that and obviously diluting it in Mozambique and a couple of other areas.

BDTV: Next time you’re in perhaps we can speak about some of your other territories.

Source: BDTV