Atlantic Leaf Properties, the Mauritian domiciled property company with secondary listing on the JSE’s AltX, has raised R1.14bn in capital from investors during the first week of February as part of its strategy to broadening and deepening its current shareholder base and buy more property assets overseas.
The new capital raised will immediately be deployed into six UK-based property assets, including three industrial properties and three commercial office properties, for a gross consideration of GBP107.8 million (including costs). New debt, representing 55-60% loan to value (LTV), has been negotiated on attractive terms. These properties have low credit risk, single-tenant occupation and long unexpired lease terms, consistent with the overall investment philosophy.
With more diverse investment pool the next natural step for Atlantic is migrating its listing to the main board of the JSE from the AltX during 2016.
The overall capital raising brings the total funds raised since listing in April 2014 to GBP135m.
2016 has seen a volatile start to global capital markets and the company’s ability to successfully complete this round of funding, is a big vote of confidence from, in particular, South African property investors in the management team and Atlantic Leaf’s strategy.
Paul Leaf-Wright, Chief Executive, and Shaun Fourie, head of asset management and operations, founded Atlantic Leaf Properties in response to the growing demand for international property investment alternatives.
The founders have many years of property investment, structuring and fund management experience, and Atlantic Leaf is set up as an independently managed business.
“Our strategy and investment criteria are intertwined,” says Leaf-Wright. “We invest directly into quality, durable assets in key Western Europe economies, with a particular focus on secondary nodes in the United Kingdom, using a mixture of equity and debt funding. Our risk appetite is relatively low and therefore we favour properties which have long-term leases with blue chip tenants in place.”
The management team has been very active and prior to this transaction, Atlantic Leaf has acquired 48 properties (let to 7 tenants) valued at GBP158m. The existing portfolio consists of a mixture of retail warehousing and industrial distribution centres in England, Scotland, and Wales. All but one of the current tenants is part of a FTSE listed group.
Subsequent to the latest acquisition, the total asset value of the portfolio will be GBP267m. The business is targeting a forward dividend yield of 7.9% for 2016/17, based on the issue price for the capital raise of GBP1.08 per share. This in the context of a stable, low inflationary operating environment, with solid growth prospects where financing costs are 3%-4%.
As with other inward listed international property companies, South African investors can access this hard currency return without utilising their offshore investment allowance, making it an attractive Rand hedge alternative by buying shares on the JSE.
“Given the spread between property yields and financing costs, it is a very competitive environment” Fourie adds from Atlantic Leaf’s London offices. “However we have been able to leverage off our collective networks to secure predominantly off-market transactions and believe that there is a lot of opportunity for the nimble. We also have been working hard to ensure that we have a healthy pipeline in place.”
According to Fourie, the new office properties not only provide diversification within the portfolio, but also provide a solid base of stable income which will allow management to extract value from the current portfolio through strategic asset management.
It is fair to say that this transaction is transformative on many levels, particularly when it comes to broadening and deepening the current shareholder base – the next natural step to migrating the company’s listing to the Main Board of the Johannesburg Stock Exchange from the AltX during 2016.
“Atlantic Leaf has only been in operation for 22 months, and as a management team we are very pleased with what we have been able to accomplish in a relatively short time. However, there is much to be done as we look for further opportunities to expand our model further into the UK and other Western European and selected developed markets,” Leaf-Wright concludes.