Offshore infrastructure offers possibilities

Infrastructure is becoming a popular alternative asset class in the global listed real estate space. Due to the huge growth in passenger and freight volumes by air, road, rail and sea, money is flowing into the building of airports, toll roads, bridges and ports (or the expansion of existing ones).

Rand-hedge counter Greenbay Properties is the only JSE-listed company that offers investors exposure to the hardcurrency income streams generated by offshore infrastructure-related concessions.

The company owns a €1.226bn investment portfolio, consisting of listed infrastructure securities, direct infrastructure assets, direct retail properties and listed real estate securities. The infrastructure assets are mostly in the US, Canada, Europe, Australia and Hong Kong, while the directly-owned retail portfolio consists of two shopping centres in Portugal and one in Slovenia.

Greenbay CEO Stephen Delport said at the interim results presentation earlier this month that the company was bidding for five different toll road transactions in Europe, of which the

equity portion varied between €30m and €500m.

Greenbay is specifically interested in infrastructure assets such as toll roads, airports and ports. Delport said governments did not always have enough money to roll out new or expand existing infrastructure projects, and riskaverse construction companies were these days also not keen to fund new projects.

Private equity players, pension funds and listed funds can be granted concessions that provide exclusive right to develop and operate infrastructure projects for a specified number of years.

Delport said the concession holder’s cash flow usually came from the revenue generated by the project or from a management fee, which is often guaranteed by the relevant government.

Delport said there were also attractive capital gains to be made in the early “ramp-up” phase of the concession term.

Greenbay’s share price was down a hefty 47% to May 10, which appeared to be primarily due to its association with major shareholder Resilient Reit. The huge sell-off of Resilient Reit and three of the companies in which it owns stakes (Greenbay, Fortress Reit and Nepi Rockcastle) was triggered in early January by concerns raised about Resilient’s cross-holding structure and a BEE scheme. Allegations of insider-related trading and share manipulation was later also levelled against the group.

Resilient executives were cleared of any wrongdoing last month by an investigation by former auditor-general Shauket Fakie, but the market still awaits the outcome of a separate probe by the Financial Services Board. Meanwhile, the sell-off of Greenbay shares has created a buying opportunity for value chasers who are prepared to sit out the current negative sentiment. The company is trading at an attractive euro-based dividend yield of around 7.2% and has one of the highest dividend-growth rates in the property sector.

Earlier this month, management declared a dividend per share of 0.2885 (€ cents) for the six months ending March — that’s 25% up year on year.

More importantly, management expects dividend growth of 25% to be maintained for the full 12-month period ending September as well as for the 2019 financial year. That’s impressive, given the average 6% dividend growth expected this year for the listed property sector as a whole.