Grit secures funding for one of the largest sale and leaseback transactions in Sub-Saharan Africa

Bronwyn Knight, CEO of Grit Real Estate Income Group.

London-listed Grit Real Estate Income Group Limited has announced the issuance of a perpetual note that will see it raise up to US$31.5 million from Ethos Mezzanine Partners GP Proprietary Limited and BluePeak Private Capital for the acquisition, expansion, and the redevelopment of the Orbit Africa warehousing and manufacturing facility in Nairobi, Kenya, on a sale and leaseback basis.

The perpetual note issuance is conditional upon certain remaining conditions precedent which are expected to be fulfilled soon.

The total purchase consideration of US$53.6 million will be settled by way of US$25 million in senior debt finance negotiated with the International Finance Corporation (IFC), a member of the World Bank Group, and US$28.6 million through the perpetual note issuance.

Grit will invest the additional proceeds of the perpetual note into the St Helene Private Hospital in Mauritius, which has been identified as an accretive near-term growth opportunity.

This Orbit sale and leaseback transaction and facilities upgrade is indicative of the reliable, secure, and attractive opportunities with robust prospects for long-term profitable growth that we are exploring on the continent” commented Bronwyn Knight, CEO of Grit Real Estate Income Group Limited.

It meets all Grit’s strict investment criteria set by our Investment Committee, including an attractive yield, NAV accretive from inception, located in a prime position and in a high-growth sector with exceptional counterparties”.

“We are excited to start this long-term relationship with IFC on the strength of a robust and well-established East African tenant covenant and an accretive investment and redevelopment project that will not only be accretive to shareholders but also create long lasting positive social, economic, and environmental benefits for local communities.

The funding arrangements mark an important step-change in Grit’s business by not only confirming Grit’s long-term partnership with the IFC, but also introducing two respected and well-established project finance partners to Grit. The structure of the transaction is in line with our strategy to co-invest alongside development funding institutions, enhancing our balance sheet, and delivering on our sustainability goals.”

Olaf Schmidt, IFC’s Manager for Real Estate, Hotel & Retail, Health & Education and Manufacturing Investments in Africa said:

IFC’s loan, to be specifically used to finance the acquisition of the Orbit Africa facility, will help to further develop vital manufacturing infrastructure in Kenya. It is important for IFC that its financing will strengthen the involvement of Grit, a successful pan-African player specialized in attracting financing from international markets by using efficient and internationally-proven business models for the development and improvement of industrial and logistics properties.”

The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi centre serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometres south of the international airport and 9.6 kilometres from the Inland Container Depot.

The site is well known to Grit, being less than one kilometre from the Imperial Health Sciences logistics facility owned by Grit, and the Grit Urban Logistics industrial site on which the company intends to commence development soon.

The Orbit transaction initially comprises of the acquisition, on a sale and leaseback basis, of an existing warehouse and manufacturing facility with a gross lettable area (GLA) of 29 243 m2 and total land parcel of 80,570 m2. The facility will be leased back to Orbit Products Africa Limited on a new 25-year US dollar denominated triple net lease, with an option to extend the lease term for a further 10 years.

A further redevelopment and expansion of the existing facility will be undertaken from the second quarter of 2022, with expected completion in the fourth quarter of 2023, when it will be let on a new 20-year triple net lease at an attractive contractual development yield, enhancing the rental income on the expanded asset and its capital value. 14 741 m2 GLA of modern warehouse space will be added as part of the redevelopment and extension programme.

The Orbit facility upgrades are expected to create long lasting positive social, economic, and environmental benefits for local communities and help to further strengthen the broader precinct as a prime logistics and supply chain hub, whilst the property will additionally benefit from being significantly improved to modern FMCG industry standards and with the goal to achieve an IFC EDGE green building certification on completion.  

An innovation of IFC, a member of the World Bank Group, EDGE was created to respond to the need for a measurable solution to prove the financial case for building green, and to help jumpstart the proliferation of green buildings. The EDGE standard is set at a minimum of 20% reduction compared to the local baseline across energy consumption, water usage and embodied energy in materials.

Environmental and social impacts include the removal, replacement, and safe disposal of roofing and other materials in the existing facility, in line with NEMA guidelines. It is further expected that because of the increased manufacturing capacity post the transaction, factory and middle-management headcount will expand by between 20% and 25%, resulting in approximately 100 jobs being added.

The developer anticipates creating approximately 150 job opportunities during the construction phase of the additional 14 741 m2 warehouse space.

Sachen Chandaria, Executive Director of OPAL commented:

“This innovative sale and leaseback transaction is amongst the largest across the sub-continent, with the strategic partnership with Grit representing a significant long-term undertaking by Orbit and reaffirms our commitment to Kenya and the region. Proceeds from the transaction will substantially further strengthen our balance sheet, positioning Orbit for expansion and for product and category extensions, to better service and support the ambitious growth plans of our pan-regional and multi-national customers.

“We appreciate the active value-add role that our partner, Catalyst Principal Partners, has played in conceiving and facilitating the execution of this transformative transaction, and we will lean on their continued strong support to further evolve and institutionalise the business, as we expand and upgrade our facilities to world-class standards, drive improvement in efficiencies and performance, and pursue growth and investment opportunities across the region.”

Paul Kavuma, CEO, Catalyst Principal Partners and Director of OPAL stated:

“As a private equity investor, Catalyst was attracted to invest in Orbit for its blue-chip customers, world-class capability, unique positioning and scalability, with the ground-breaking partnership with Grit enabling a release of capital for growth and an acceleration of the business’s strategic aspirations.”

OPAL, controlled by Sachen Chandaria and his family, has operated in Kenya for close to 50 years and is the leading pan-regional contract manufacturer of dominant brands in personal care and home care products across the East and Southern Africa, employing over 600 permanent staff. OPAL’s primary clients include global multi-nationals and leading regional FMCG players, including Reckitt Benckiser, Unilever, Colgate, and Henkel as key customers.