A lot of liquidity geared toward property investments
Bifm accelerates investments in property
Wants to grow its fund to P2bn
BPOPF in property spending spree
Kamogelo Mowaneng the CEO of Letlole La Rona says the group is starting to look at innovative ways to source transactions owing to “increased competition in the market”. Mowaneng who was speaking during the presentation of results for the half year ended 30 June 2023 observes that “it’s no longer adequate to know so and so because there are a lot of players in the market”. The company has had to level up in terms of deal initiation structures and finding innovative ways of enhancing the look and feel of “our properties”.
Letlole also launched its Go-to-Africa strategy to create a diversified portfolio. This stemmed from the fact that Botswana has about six listed property companies. What this means is that there is increased competition in terms of deal sourcing or scramble for assets, Mowaneng observed citing “unlisted companies and asset management companies moving into the property space”. “We see our shareholders and major investors such as BPOPF (Botswana Public Officers Pensions Fund) starting their own property funds, Bifm (Botswana Insurance Fund Management) started Bifm Local Property Fund.” Mowaneng highlighted the “excess liquidity” in the market, a lot of which she said is geared toward property investments.
Bifm accelerates investments in property
Bifm had to hold back in terms of its investment in the property sector. Botlhe Tshukudu, the Portfolio Manager for Unlisted Unlisted Investments explained that this was due to the depressed rental yields the market was seeing and the risk to valuations witnessed at the time given the uncertainties brought about by COVID. Speaking during a recent breakfast seminar by the company, Tshukudu said the fund is carrying excess cash owing to the pandemic. “During that period, there were significant risks that we saw in as far as our property market was concerned.”
But now that the dust has settled, he said Bifm has accelerated efforts to “invest some of this cash that we are holding and we are looking at various opportunities in different sizes of execution”. “So we would really like to see this cash go down over the next six to 12 months to ensure that it’s fully invested.”
Growing the fund
Bifm has an intention to grow its Local Property Fund to about P2 billion from the current P1.3 billion. Tshukudu believes that in terms of the next phase, “where we find ourselves, there are opportunities for us to grow this fund to absorb the excess liquidity that we are anticipating in the market”.
The asset manager invests through various vehicles, whether directly in properties and other instances partnerships with like-minded investors. In some instances, Bifm also takes a shareholding in companies that own assets. As an example, Airport Junction is owned by a Special Purpose Vehicle (SPV). Bifm Property Fund owns 15% of the SPV together with other like-minded investors. “We do have partnerships, if you look at Engen Palapye and Engen Main, those are partnerships that we have with other like-minded investors and the intention is to continue to take part in the property market through those same vehicles,” Tshukudu said during the recent Bifm Breakfast Seminar.
According to his slides, the fund is invested in a number of sectors; retail, office, residential and industrial. Retail target allocation stands at 51%. The fund is currently at 48% given its sheer investment in retail particularly within Airport Junction. The fund is slightly underweight on the office space due to the risks that the company said it continues to see within the office space. The residential, hospitality and industrial spaces also have a small allocation.
Expanding geography
Tshukudu said the fund is invested mostly in Gaborone mainly based on the opportunities that the company is seeing. “But the intention is to further diversify away from Gaborone and look at other geographies within Botswana and outside the country given that the fund can also invest in Southern Africa,” he said adding that the portfolio is positioned to take advantage of opportunities that “we are seeing in the property sector”.
BPOPF Spending Spree
BPOPF has also been shopping. Last week, the Competition and Consumer Authority announced that it had received a merger notification for the proposed acquisition of Lot 67977, Fairgrounds, Gaborone from Time Projects on behalf of BPOPF by Khumo Property Asset Management through BPOPF Khumo Managed Property Fund. After the sale, Khumo Property will have full control of the property situated in the Gaborone Administrative District on behalf of BPOPF. Khumo Fund is a newly set up fund.
BPOPF also recently acquired Lot 1227, Haile Selassie Road, Gaborone from Protocol Plant & Civil Investments Proprietary Limited through Letsema Property Fund II which invests in a selected portfolio of property assets that are then leased. Letsema Property Fund II is managed by Messidor Investment (Pty) Ltd as a Property Assets Manager. The fund also acquired Lot 22013, Gaborone West Industrial from Shoebill (Pty) Ltd.
Letlole salivates at other markets
With more funds being channeled towards the property sector, the questions Mowaneng pondered is how do they see this panning out in the long-term given that more funds are being repatriated? Will there be a price bubble and possibly yields being depressed? So why don’t we look outside the country for further opportunities to grow such that we can continue those sustainable returns to shareholders?
With the Go to Africa strategy, Mowaneng said it was to give them a wider market which ordinarily is not available in Botswana. As an example, one of the assets the company disposed of is Moedi House, one of the office properties. As Tshukudu noted, in Botswana office space returns have been depressed for a number of years due to an oversupply.
Mowaneng sees a huge demand for office space in other African markets. “Even the type of office changed from high-rise buildings to green spaces with an increase in mental health. Now people are looking to have lunch in parks rather than having lunch in restaurants,” Mowaneng observed. “Those are some of the shifts we are looking at to say, well maybe in Botswana this particular asset class is not performing well but we could look at other countries in Africa which meet our criteria.”
Commits to Botswana
But she was quick to emphasise that they remain a Botswana company and therefore their first priority is to expand Botswana’s portfolio and stimulate the economy. The CEO said they leverage strong networks and partnerships. “Our advantage is that our major shareholders (and stakeholders) are big players in the market.” BDC for example owns land. Botswana Investment and Trade Centre (BITC) is a one-stop shop.
Special Economic Zones Authority (SEZA) has designated areas to help the company to grow its portfolio. “Those are part of the strong relationships we leverage to be able to grow the portfolio.” In Botswana, Letlole is seeing growth opportunities in the retail and industrial sectors. The company recently increased its stake in Rail Park mall.
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