By Vishal Bhidu
Considered a pioneer in real estate, Grit Real Estate Income Group Limited is a leading, London-listed pan-African impact real estate investor and solutions provider. The Group invests in and actively manages a diverse portfolio of assets underpinned by mainly US dollar and Euro denominated long-term lease with high-quality multi-national tenants. GRIT has been a growing business with 33 assets spanning across 11 African territories.
On October 31, GRIT announced its financial results through an investors meeting where it declared that it witnessed a huge growth across different pillars and economies. At one glance, asset management fee income within the subsidiaries shot up to USD 1.4 million showcasing an increase of 219 percent in relation to the previous year at USD 0.48 million. The total dividend was declared at USD 2.00 cps for the six months ending December 31, 2022, with 46.6 percent payout of distributable earnings. The value of its Income-Producing Assets stood at US$862m in the financial year 2023.
During the presentation, GRIT Real Estate Income Group CEO, Bronwyn Knight explained that the group’s 2.0 concern and journey has been incepted as showcased by the result where it navigated huge headwinds in a context where the globe has been impacted by high-interest cost. She said, “What is really important and what remains the focal point during the day’s event is that our operating assets have performed and witnessing strong operational performance in the midst of high rising interest rates, and valuation pressures coupled with the fact that our evaluations remained consistent. Our Net Operating income (NoI) saw five and a half percent growth and we collected 100 percent of what we have invoiced while completing three significant projects through our development partner GREA.”
GREA’s acquisition: What it means for Africa’s growth story.
Bronwyn went onto highlight, “The discussions will be centered where were we were historically, where we are today, and where we will be in future from the interest impact perspective”. She set the tone on the group’s future and what does the completion of the acquisition of GREA means for the African continent as a whole.
She stated, “What an important and key semantic is built around capital allocation and what is our allocation strategy implying that we have significantly deployed cash into significant debt reduction in excess of USD 35 million coupled with rising interest costs, deemed to be absolutely critical to our bottom line having completed the acquisition of GREA.” For her, the acquisition of GREA fits with telling the growth story of Africa, the real estate growth narrative of Africa implying access to impact assets, global tenants such as the American Embassy, data and call centres as well as industrial assets.
The latest acquisition strategy, she says, is to help ensure the securing of development yield of property, clocking pipeline development, and telling the numbers in showcasing the growth of the booming African real estate.
Bronwyn said, “The reason behind the acquisition of GREA where we have put considerable capital at the door implies that it’s not limited only to positioning the business at present and also heralding in the future because it helps us get control and access our pipelines, development yields, and returns witnessed across the asset classes.” Furthermore, she elucidates on the various reasons behind the business strategy namely the need to demonstrate that assets carry the valuations that GRIT has in its box currently, a need to dispose of non-call, low-yielding assets and deploying that capital into either debt and high-interest rates or secondary in today’s times which is obviously high-interest rates. Moreover, such strategies are designed in such a manner to help ensure that GREA acquisition is marked complete.
One question that comes to the fore behind the business strategy is why disposable assets? “As we speak about capital strategy, we have successfully deployed USD 136 million of asset close to NAV where sustainability-led growth income to impact sustainability, is one of our key focus. At the same time, there is a need to protect the balance sheet spurred by challenges as one needs to look at hedging strategy and witnessing administration cost line to increase as we created this growth platform ushering into the future remains key to our objectives,” explained Bronwyn.
11 countries, 33 assets and revenue growth
The fact that GREA has merged into GRIT as a developing company has lent exposure across 11 African countries and 33 assets, puts to the fore the group’s core strategy. Multi-geographic, multi-asset class and leading to a reduction in exposure to non-call assets is what it entails while in the same vein focusing on impact assets is key as GRIT looks at the structure with the entity forays into its future built around impact.
Bronwyn says, “The fundamental remains the same and the operations have performed in a considerable fashion where GREA’s merger indicates recycling assets with the deploying of capital against 10 percent of our revenue exposed to the biggest tenant the American Embassy.”
She further pursued: “Our operating assets still saw revenue growth and growth as per earning seeping into the fundamentals of the property portfolio. The significance of collection where we are in complete control of our property management facility and leasing pillar spanning across the continent while in terms of absolute core for our business fundaments.”
“As we speak about increasing asset acquisition where it obviously comes to the fore that GREA transaction is successfully marked close and complete laden with a fact that a significant amount of capital has already been paid out coupled with the fact that we have seen completion of the asset one within budget. At the same time, we are still in the process of closing our shares with the core investors where we should see a consolidation of GREA in upcoming months,” she says.
The strategy behind capital deployment and simplification as key fundamental
The acquisition of GREA holds considerable significance to Bronwyn, where USD 56 million has been moved out to the latter’s acquisition with a significant reduction of debt, refining costs with asset recycling. “What is very important is to note that we have put a considerable amount of capital from an interest-saving perspective and post-completion of the deal, we are waiting to finalise the dividend policy pertaining to GREA,” she said.
She added, “Historically speaking, we have been a multi-geographic and multi-asset class, today through the acquisition of our development company we have come to the market to state boldly that our asset focus will be impactful meaning recycling asset classes such as hospitality and retail which will be non-core assets. At the same time, focusing on areas such as office medical and call centers so the latter will be asset classes such as data centers while our core sectors will be asset classes such as data centers, call centers, industrial and American embassies. In short, the core focus area of the group is leaping ahead.”
There have been a number of associate companies and a slew of complicated accounting disclosures and in line with the acquisition of GREA, it entails that the group has been simplified. “What I mean by simplifying the group is that assets have been categorised into specific asset classes and we are in the process of closing sub-structures and capitalize with substructures,” says Knight.
The CEO mentioned that, “Africa being an industrial substructure which is capitalised by the IFC funding, USD 30 million has been born and that means focusing on industrial which we have now by closing the acquisition of GREA where it is in the process of being capitalised with a further USD 15 million which will ultimately align to and the delivery of the pipeline.”
She added that delivery of the fees will come back to the group and hence, simplification has been a key fundamental delivery and component.
Concluding Remarks
In her concluding remarks, Bronwyn insists that the group’s ongoing operations coupled with the focus team is training its guns on asset management while extracting value out of the capital allocation strategy deployed to GREA.
She explained, “We will help ensure on the ability to leverage fee income flowing from development management, property management, facility management, and asset management. The extraction of value will be paramount to the next 12 months with our continuous focus on non-call disposal loan yielding asset, non-call-in capital redeployment for debt repayment, debt reduction and going deep into the GREA pipeline, high yielding impact and focused pipelines with sustainability and impact as key fundamentals.”
Speaking on the issue of debt reduction as one of GRIT’s endeavours, she added, “We will ensure to embark on the continuous path to manage our capital allocation strategy in 2023 with debt reduction akin to high interest, and slashing administration cost from 2.4 percent to 1.8 percent as a key deliverable. “The board will consider a special dividend upon consolidation of GREA finalization of the dividend policy, as a key aspect of the financial year,” concluded Bronwyn.
