Off­shore in­fra­struc­ture of­fers pos­si­bil­i­ties

Financial Mail - Investors Monthly - - Analysis - Joan Muller

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.

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