Grit Real Estate — treading where angels fear

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Grit Real Estate CEO Bronwyn Corbett said the group continued to grow its operations through carefully considered investments and partnering with large international tenants. Grit Real Estate CEO Bronwyn Corbett said the group continued to grow its operations through carefully considered investments and partnering with large international tenants.

While many property investors voted against Africa with their feet leaving the continent when its economies were on its knees — for Grit Real Estate, it was a triumphant entry.

The pan-African property fund that recently entered its eighth country on the continent, on Thursday last week reported robust interim results for the year ending December 2019.

Grit declared an unchanged dividend amount of 5.25 dollar cents with the group’s profit from operations increased by 46.6 percent to $10.7 million.

The group, which operates in Morocco, Senegal, Ghana, Mozambique, Kenya, Botswana, Zambia, and Mauritius increased its total assets by 8.0% from US$796.4 million to US$860.1 million for the period through 46 properties (including 21 assets in its Botswana-based investment LLR).

Chief executive Bronwyn Corbet said Grit continued to grow its operations through carefully considered investments and partnering with large international tenants.

“We successfully entered Senegal after taking transfer of the Club Med Skirring resort; we took delivery of the first development into which Grit provided pre-funding, providing us with a meaningful share of development profits; and we increased our shareholding in Letlole la Rona (LLR) within the investment-grade country of Botswana,” she said.

The Mauritius-based company posted a 29.9% increase in gross rental income of US$24.3 million (H12018: US$18.7 million). Operating profit increased by a substantial 46.6% to US$10.7 million against US$7.3 million for the corresponding prior-year period as a result of strong portfolio performance and acquisitive growth over the period.

An interim dividend of US$5.25 cents per share (H12018: US$5.25 cps) was declared, in line with the Company’s strategy to maintain current distribution in cents per share while over the medium term reducing the payout ratio and redeploying resources into attractive and accretive opportunities that will deliver capital growth potential over the short and longer-term for shareholders. The Group remains on track to meet its full-year target of a 12% increase or more in total return (US dollar-based).

The AnfaPlace Mall refurbishment in Casablanca, Morocco, was completed in September 2019. Successful letting activities have increased Grit’s EPRA portfolio occupancy rate to 97.4% as at 31 December 2019 (H1FY18: 96%). The redevelopment and successful launch of the new anchor tenant Alpha 55 has been well received in the market. The mall has now been successfully repositioned and management expects that further initiative on utilizing common areas for marketing and generation of specialty leasing income in the mall, as well as improvement in the parking management system will generate additional revenue.

On November 20, 2019, Grit announced the acquisition of an additional 23.75% interest in Letlole La Rona Limited (LLR), listed on the Botswana Stock Exchange, from Botswana Development Corporation ("BDC").  Through this transaction, Grit has increased its stake in LLR from 6.25% to 30.0% and is expected to develop a strategic partnership with BDC as an institutional investor in Grit and a potential co-investor indirect real estate opportunities throughout Africa.

In December 2019, Grit took delivery of 60 corporate accommodation units in Mozambique, built under a turnkey construction contract that concluded the first transaction by which the Group provided pre-development financing to developers and shared development benefits. Total construction costs amounted to US$9.3 million (excluding VAT) and the profit share amounted to US$4.6 million. The specific units were valued at US$17.4 million, resulting in a value uplift of US$3.4 million attributable to Grit. The overall increase in the value of the accommodation complex was positively impacted by the lease renewals of VDE Housing Estate, which combined with US$3.4 million uplifts from the 60 new units, resulting in a total value increase of the property of US$6.1 million.

Post the reporting period, in January 2020, Grit completed the acquisition of the Club Med Cap Skirring resort in Senegal in a sale and leaseback (with a new 12-year lease) from the Club Med Group. The redevelopment and expansion of the existing hotel capped at €28 million is expected to begin by the end of the first quarter of 2020. The transaction has unlocked additional potential pipeline within the hospitality sector and is the first asset to be acquired in Grit’s Paradise Hospitality vehicle. The venture signals a strategic partnership between Grit and Club Med for collaboration on their entire real estate portfolio across the African continent and the Indian Ocean.

The Botswana and Senegal transactions form the basis for activating additional revenue streams from providing asset management solutions to external shareholders and associates of Grit in the coming months.

The Group delivered modest growth in asset values over the reporting period, with net asset value growth being limited to 1.1% year-on-year. Most sectors in Grit’s portfolio showed positive valuation growth, specifically the Corporate Accommodation sector (which includes the component of development profit from the VDE Housing Estate Compound expansion), however, the retail sector was impacted by negative sentiment towards retail assets in general as well as trading difficulties of some retailers on the continent. These impacts were predominantly felt at Mukuba Mall (Zambia) and Mall de Tete (Mozambique).

Administration expense increased by 22% over the period and includes transaction costs of US$1.1 million mainly relating to the LLR acquisition. Grit’s staffing complement has been bolstered to absorb the recent and future expected growth of the portfolio as well as third party asset management services. Over the next six months, the Group will place less reliance on external consultants as a result of the recent appointments of in-house corporate advisory, legal, company secretarial and human resource staff.

The Group has concluded a number of debt refinancing programs which, together with a decrease in the US$ LIBOR rate has seen an overall reduction in financing costs with the current weighted average forward rate being 5.98%, down from 6.43% in December 2019. 68.8% of Grit’s LIBOR exposure is fixed (December 2018: 42.1%)

Grit has access to an identified pipeline of approximately US$470 million which it expects to deliver on in the medium term. The pipeline of investments is strategically placed to continue strengthening the geographic and sectoral spread of the Group’s investment portfolio. The investments consist of a balanced mix of asset acquisitions and a risk mitigated development pipeline which the Group expects will ultimately deliver higher capital growth prospects in the medium term.

Pipeline transactions include:

Mauritius: Financing the development and acquisition of St. Helena and Coromandel hospitals. The transaction is ongoing and subject to approvals, development work is expected to begin by the end of 2020. 

Ghana: Acquisition of 50% shares in PWC and Huawei's Accra headquarters. The deadline for completion of the outstanding conditions or waivers on the PWC and Huawei Head Office transactions has been extended until 28 February 2020 (previously 31 December 2019).

Kenya: Acquisition of up to 100% stake in The Orbit Africa warehouse in Nairobi.

The suspensive conditions related to the transaction are in progress without changing the closing target date of the transaction, March 31, 2020.

Morocco: On 12 February 2020, Grit announced that it had entered into a non-binding memorandum of agreement with, among others, the Soprima Company and Massirat Al Houda Residence, a subsidiary of Soprima and sole legal owner and beneficiary of a mixed-use property known as Massira Corner, located in Casablanca, Morocco.

The objective of this negotiation is to acquire a stake in a vehicle approved by the Real Estate Collective Investment Organization ("OPCI") promulgated under recent changes to Moroccan regulations.

The property consists of gross lettable area of approximately 16,500 m2 and is anchored by Hotel Onomo with 201 keys and occupying c.67% of the gross lettable area, alongside notable high-street retail brands such as H&M, Charles and Keith, Starbucks, Terranova, and Cosmos, who occupy the balance of ground-floor retail space (c.33%).

Grit intends to further grow the OPCI’s asset base with a number of contemplated acquisitions to further diversify the vehicle’s sector and tenant exposures. We currently have exclusivity over an A-grade light industrial asset secured by a 10-year triple net lease to US-listed Aptiv plc (formerly named Delphi Automotive plc), and have signed a non-binding memorandum of understanding with Club Med in relation to the development of a 350-key hospitality resort in Essaouira, leased back to Club Med on a 15-year fixed Euro lease. We additionally expect that AnfaPlace Mall will be a suitable asset for inclusion within this OPCI structure, and expect to make further announcements in this regard in due course.

The Group is on track to move trading in its shares to the premium listing segment of the London Stock Exchange's main market and to re-domicile its corporate seat to Guernsey in 2020, which should facilitate the Group's eligibility for inclusion in the FTSE UK Index Series. This is expected to significantly improve the liquidity of the Company's shares and further diversify the Company's shareholder base. The Group is also actively reviewing its current listing locations and assessing the viability of three concurrent listings and the impacts it might be having on share trading liquidity.

"We expect the retail sector to remain challenging in both the occupancy and investment markets in the context of a rapidly changing retail sector, but we expect to generate value by continuing to focus on maximizing current portfolio performance and creating value through our operational expertise and proactive asset management, our strong financial management and the continuation of our strategy of diversifying and expanding our real estate assets,"  adds Bronwyn Corbett.

“We continue to evaluate a number of financing options to fund our investment pipeline of high-quality accretive assets leased to multinational corporates and attracting hard currency rental streams. We will update our shareholders on this in due course. We remain well-positioned to continue to build on our strong market position and deliver attractive risk-adjusted returns to our shareholders in the short and long term.

Finally, it is a positive and encouraging trend to see the steady growth of our share register on the London Stock Exchange, which now accounts for about 28% of the total shares issued (15% in December 2018 and 12% at our IPO), which we believe is evidence of the growing interest in  Africa by institutional shareholders in the UK and we thank them for their support so far,” concluded Corbett.

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