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M&A Africa: Property Fund Invests In Zambian Malls As SA Reaches Saturation

M&A Africa: Property Fund Invests In Zambian Malls As SA Reaches Saturation

South African property investment fund Delta Africa has acquired 50-percent interest in two Zambian shopping malls, a move the company says will send a positive message to other South Africa-listed property investors, BusinessDayLive reports.

As the South African market approaches saturation for shopping malls, many property funds are seeking investment opportunities in economies with a higher growth than South Africa’s, SAcommercialpropnews reports.

South Africa ranks sixth in the world for shopping centers, with almost 2,000 shopping centers encompassing 23 million square meters (247.57 million square feet).

Shopping centers have driven retail property developments in South Africa for decades, and now it’s happening in other parts of Africa.

Listed property in South Africa will struggle going forward into 2016, said Evan Robins with Old Mutual Investment Group.

“I think we are seeing too many shopping centers being built,” Robins said, according to SAcommercialpropnews. “A poor economic environment with limited prospects to improve strongly into the near future means that malls just won’t be sustainable.”

Delta Africa has offices in South Africa, Mauritius and Morocco, focusing on African real estate assets outside South Africa with U.S. dollar-denominated long-term real estate leases.

The fund has been listed on the Stock Exchange of Mauritius and now the Johannesburg Stock Exchange. This attracted a diverse shareholder base including Africa’s largest pension fund, the Public Investment Corporation, according to the Delta website.

Delta Africa announced Tuesday it would acquire Mauritius-based Rockcastle Global Real Estate’s 50-percent interests in Kafubu Mall and Makuba Mall in Zambia.

Stephen Herring and his development company own the other half of both malls.

Rockcastle wants to focus on investing in Poland and other parts of Eastern Europe, BusinessDayLive reported.

The Kafubu Mall acquisition is valued at $4.08 million and the Makuba Mall purchase is valued at $17.5 million. The transactions will be settled in cash. The 50 percent stakes in both malls are being purchased at a yield of 8.4 percent.

Delta plans to raise the cash through debt funding or a placement of shares to third parties, according to BusinessDayLive.

Kafubu Mall is located in Ndola. Rent averages $12.24 per square meter in the 11,964-square-meter (128,779.42 square-foot) mall.

The Makuba Mall is located in Kitwe. Rent averages $14.45 per square meter in the 28,235-square-meter (303,919 square-foot) mall.

Expansion into Zambia will send a positive message to South Africa-listed property investors, said Delta Africa CEO Bronwyn Corbett.

The fund has struggled to stabilize in Africa, and the decision to grow more aggressively and spread into more African countries than originally planned will boost it, she said, according to BusinessDayLive.

“It’s been tough. We have been in Mozambique and Morocco before this, basically looking at investing in office properties and retail properties,” Corbett told BusinessDayLive. “It took us a while to make acquisitions there. But now we have set up a bigger team and our management is moving to Mauritius.”

Delta’s decision to switch to offshore headquarters in Mauritius a year ago has been advantageous, FinancialTimes reports.

“Over the past two decades, the country’s role as a financial center has grown significantly on the back of deep links to India. But Delta has been part of a second, Africa-focused wave on which Mauritius is keen to capitalize,” Corbett said.

In South Africa, listed property has been a consistently strong performer for the last decade, outdoing equities, but the sector will likely run out gas of the at the end of 2015, said Kundayi Munzara, director at Sesfikile Capital.

Munzara spoke at a recent South African Council of Shopping Centers conference, according to SAcommercialpropnews.

Investec’s chief economist, Annabel Bishop, told investors this week that domestic demand for listed property is weak in South Africa, according to SAcommercialpropnews. “Pressure on costs and profitability persist, while policy uncertainty — particularly threats to private-sector property rights — undermine confidence and private-sector fixed investment,” Bishop said.

“It may be better for funds to start looking at buying or building shopping centers in African countries including Nigeria, Ghana, Zambia and Kenya, which have strong growing middle classes, economic growth and an undersupply of shopping centers. It takes time and there is risk but it could be well worth it,” Old Mutual Investment Group’s Robins said.

Other funds building and buying shopping centers in Africa include Resilient Property Income Fund and Hyprop Investments, SAcommercialpropnews reported.