London listed Grit Real Estate Income Group has posted a strong operational performance for the 6 months ended December 2021, with its group loan-to-value (LTV) having reduced by 11.7 percentage points to 41.4%, allowing for the resumption of dividends.
“Throughout the pandemic, we have focused on revenue stabilisation, diligent cost control and the effective management of rent collections and vacancies. These efforts resulted in continuing strong and improving cash collection of contractual revenue, with encouraging early signs of recovery in the leisure and retail sectors”, said CEO of Grit, Bronwyn Knight.
“We took significant actions to strengthen our balance sheet during the period under review. Proceeds from our proposed Open Offer and the placing of new shares with current and new investors reduced debt by US$47.0 million. In addition, the share issuance provides future capital for further expansion of our core and expanding business, enabling the acquisition of major stakes in Gateway Real Estate Africa and Africa Property Managers Limited”.
The proposed acquisitions will provide Grit with access to GREA’s attractive pipeline of accretive development opportunities, and the Board believes the medium-term NAV growth prospects of the Grit Group will be significantly improved upon completion.
The acquisition of a controlling interest in APDM is expected to further allow Grit to earn substantial development and asset management fees into the future from internal and third-party clients and joint venture partners.
The reduction in LTV is below the Board’s targeted 45% threshold to resume distribution payments, and subsequently allowed Grit to declare a US$2.50 cents per share dividend, up 66.7% on the prior comparative 6 months’ dividend of US$1.50 cents per share.
Although Grit is not a REIT, its stated policy is to pay out at least 80% of distributable earnings to shareholders and its board continues to target paying a dividend of between US$5 to 6 cents per share for the current financial year.
Grit’s portfolio comprises a total of 54 investments, across 8 African countries and 5 asset classes. It’s office, light industrial and corporate accommodation sector assets, comprising of more than 50% by value of the group’s property portfolio, remain robust and resilient and relatively unaffected by the pandemic.
The group’s asset portfolio has a weighted average lease expiry of 4.4 years (30 June 2021: 4.8 years) with weighted average contracted annual rent escalations at 4.7% for the period (30 June 2021: 3.8%). 90.0% of revenue is earned from multinational tenants (30 June 2021: 90.9%) across various sectors, with 91.6% of income (30 June 2021: 92.7%) produced in hard currency.
Although the group’s EPRA portfolio occupancy rate slightly reduced from 94.7% at 30 June 2021 to 94.3% at 31 December 2021, the weighted average occupancy rate improved by 2.3% on a year-on-year basis. This was achieved through focused leasing activity in the retail and office sectors.
Its cash collections showed further improvement in the 6 months to 31 December 2021 growing to 94.9% of contracted lease income (from 92.5% for the 12 months to 30 June 2021 and 91.4% in the corresponding 6-month period in 2020).
Hospitality sector tenants have now all resumed lease payments in full as from December 2021. Whilst the group has agreed a 48-month period for Beachcomber to repay €4.5 million in cash concessions granted in 2021, the Lux Group has now repaid all outstanding contractual lease amounts.
“Concerns arising from the new Covid-19 Omicron strain peaked in December 2021 and impacted both travel and confidence in Southern Africa over that period. Notwithstanding this, we are increasingly encouraged by the early signs of recovery in leisure, office, and retail since the period end, which have the potential to deliver enhanced income and capital growth to our shareholders,” added Knight.
Property portfolio net operating income increased by 0.8% from US$26.6 million to US$26.8 million, with a 10.8% increase from the group’s retail sector assets, which offset the slight weakness in the office and corporate accommodation sectors.
Grit’s EPRA net reinstatement value (“NRV”) per share contracted to US$0.867 (30 June 2021: US$1.024). The 15.3% reduction was principally due to the dilutionary effect of the issuance of the new ordinary shares which reduced NRV by US$0.175 per share. Distributable earnings per share and EPRA earnings per share were similarly principally impacted by dilutionary impacts of new share issuances and fair value adjustments on financial obligations.
Grit’s portfolio valuations were impacted over the period, as valuers increased discount rates, capitalisation rates and more conservative re-let assumptions. Since the onset of the pandemic, reported property values dropped by over US$114 million, representing a 14.2% like-for-like reduction compared to 31 December 2019.
Over the 6 months to 31 December 2021, the property portfolio valuation increased by 0.1% and early signs of stabilisation and recovery are becoming increasingly evident across those assets in sectors hardest hit by the pandemic, which could lead to an earlier than expected rebound in retail sector asset valuations.
“With Africa rapidly urbanising, we are cognisant of our role in transforming the design of buildings and developments for long-term sustainability. Our sustainability efforts focus on energy efficiency and carbon reduction, and we remain committed to a five-year target of a 25% reduction in carbon emissions and a 25% improvement in our building efficiency. We pride ourselves on having achieved more than 40% of women in leadership positions at Grit, and more than 65% localised employees, adding to the group’s diversity”.
“We have implemented decisive initiatives to defend and grow our position and safeguard the business to deliver enhanced stakeholder value over the short and long term. With our expertise in African real estate, and our team’s experience, knowledge, skill sets and relationships in various regions, we will continue to optimise assets and create value through proactive asset management and risk-mitigated development opportunities to support NAV growth,” said Knight.
Post the reporting date, Grit announced the sale of its 100% interest in ABSA House, Mauritius, announced on 26 January 2021. Inclusive of transaction costs, the net sale proceeds to Grit are expected to be approximately MUR 180 million, or US$4.1 million, which will be applied towards the Company’s revolving credit facilities and further debt reduction.
Grit continues to be in discussions for the disposal of AnfaPlace Mall, its largest asset. These disposals will collectively represent more than 10% of the Groups property portfolio (by value) as at 31 December 2021, and is in line with Grit’s stated asset recycling target of 20% of the value of the group’s property portfolio by 31 December 2023, at, or close to, reported book value.
Proceeds from the disposals will be utilised alongside NAV accretive acquisition opportunities to reduce debt to within the Group’s targeted medium-term range of between 35% and 40%.
“We will continue to selectively pursue potential investments from our high-quality, diversified and yield accretive pipeline, supported by a strong tenant base and possible co-investment opportunities as we have recently done. The recent strengthening of our funding relationships with DFI’s and banks positions us well to pursue further investment in industrial sector assets, where we see significant opportunity,” concluded Knight.