London-listed Grit Real Estate has announced its intention to raise up to US$215.6 million by way of an open offer with the proceeds to be used to deleverage its loan-to-value of 53% to c.33% and to acquire a controlling stake in specialist property developer, Gateway Real Estate Africa (GREA).
“The transaction and issue provide a significant de-leveraging opportunity with absolute levels of debt reduction, to effectively position the company for post-Covid-19 recovery opportunities in the African countries we operate”, commented CEO of Grit, Bronwyn Knight.
“The acquisition, an approval at the general meeting will provide investors with increased exposures to de-risked African real estate development returns. As a result of the expected improvement in group loan-to-value to less than 45%, the board will target the resumption of a fully covered dividend of between US$5 and 6 cents per share for the financial year ending 30 June 2022, equating to greater than 9.6% yield on the issue price”.
“GREA’s investment pipeline further provides strong potential for significant capital growth as a result of their higher yielding, pre-let, and fully funded development assets that are critical infrastructure to tenants and in strong and resilient sectors with higher barriers to entry. GREA does not develop speculatively but rather provides de-risked development solutions on the strength of tenant led real estate requirements”.
“Shareholders have to date provided commitments for in excess of 68% of the total fundraise as well as indicated support for the acquisition, achieving the 51% threshold for the resolutions to pass at the upcoming general meeting”.
“We are encouraged by the strong commitment from shareholders – which include management and the board of Grit – for the proposed issue and transaction” she said.
Post the implementation of the transaction, Grit will be ideally positioned to implement a debt consolidation strategy that is expected to result in lower cost and longer-term funding, as well as an acceleration of its asset recycling strategy that will reduce its exposure to retail assets on the continent.
The successful conclusion of the transaction will further enable Grit to resume dividend payments, with the company targeting an annual US dollar total return growth of between 13% and 15% comprising a strong and growing US$ dividend and an increased net asset value uplift contribution by virtue of the accretive development pipeline acquired from GREA.
“The board considered it prudent to not pay a distribution in the 2021 financial year, to protect the balance sheet against the volatility and impact of Covid-19 at the time. The board did however at the time provided guidance on the resumption of dividend payments once debt levels returned to below 45% loan-to-value”.
“The conclusion of this transaction will effectively place Grit in the position to resume dividend payments from operational earnings in the current financial year ending June 2022” added Knight.
Founded and co-sponsored by Grit in 2018, GREA is a private company providing a ‘one solution’ approach to corporate clients’ real estate needs across Africa. Currently developing and operating across 11 countries on the continent. The company is further de-risked as it does not hold any land bank or other speculative investments.
GREA materially transfers construction risk to professional construction partners through fixed price or turnkey constructs and therefore largely only retains timing and delivery risk. The full asset management, advisory and administrative function of GREA is outsourced to its management company, APDM, which will also be acquired by Grit. The asset manager has developed relationships and credentials to ensure significant future pipeline developments, most notably in US diplomatic housing (the US Bureau of Overseas Buildings Operations) and data centre development opportunities.
GREA’s post stabilisation value of funded projects currently being delivered by the management company amounts to approximately US$280 million. Fully funded projects underway include a Tier III, five-megawatt data centre project in Lagos, Nigeria, US embassy accommodation in Nairobi, Kenya and in Addis Ababa, Ethiopia, a healthcare facility, and corporate office development in Mauritius as well as a mixed-use development in Appolonia City, Ghana.
The general meeting for Grit shareholders to approve the transaction has been set for the 14th of December 2021 and an excess share placement book build on the 17th of December. Announcement of result of Open Offer and Placing, and excess share placement is expected on the 20th of December 2021 with the Newly issued shares being tradable from the 21st of December 2021.
