Gaia Fund Managers on Tuesday announced the launch of South Africa’s first specialist real estate investment trust (REIT) investing in on-site private electricity generation for commercial and industrial clients.
In a first round of fund-raising, Gaia Renewables REIT said it aimed to attract R500 million from institutional investors, high-net-worth individuals and family offices.
In terms of the structure, Gaia Renewables REIT will issue batches of preference shares, aimed to be listed on the Cape Town Stock Exchange. The REIT would fund the on-site solar power projects. The first batch of preference shares – which will be listed after the current fund-raising round – targets a listing in June.
“The fund will allow investors to benefit directly from solving South Africa’s 10 000MW electricity deficit,” a statement from Gaia Fund Managers said.
“Factories, mines and other businesses need electricity to operate,” said Renier de Wit, the managing director of Gaia Fund Managers.
“Currently, electricity supply is unreliable, and it does not look like it will improve; it is only going to get worse. We have seen the impact of rolling blackouts on South Africa’s GDP (gross domestic product) in the fourth quarter of 2022: it shrank by 1.3%.”
It said the cost of installing solar power and energy storage solutions could be prohibitive to many businesses. This conundrum presented a unique opportunity to provide businesses with a renewable energy power solution owned by a third party, with predictable cash outflows over the medium term.
“They will have certainty of supply and maintenance of the solar system while assured they can, well ahead of time, budget their electricity expenses,” said De Wit.
Gaia Renewables REIT was partnering with Blue Energy Africa, an on-site developer of clean energy solutions for commercial and industrial clients.
Gaia said it had raised and deployed more than R3.5 billion over 12 renewable energy transactions since 2012, showcasing its ability and track record of swiftly deploying investors’ capital to earn good, consistent and inflation-beating returns.
Whereas large utility-scale renewable energy projects could take up to two years to construct and, thereafter, only offer a return to investors, Gaia said on-site solar power solutions were built within a few months, with investors likely to receive their first distributions within 12 months.
“This is an attractive proposition to investors as the lead time to receive inflation-beating returns is far shorter than with large utility-scale power projects,” said De Wit.
“The on-site solar power projects give investors a predictable period of cash flows as electricity off-takers (commercial and industrial clients) sign multiyear power purchase agreements with the developer. In terms of these 10- to 20-year agreements, the off-take price of electricity typically increases by a fraction of the inflation rate,” Gaia said.
De Wit said: “It’s a defensive asset with a stable and predictable cash flow profile. It is an attractive proposition for those investors with a long-term investment horizon who seek capital preservation.”