Grit Continues Cautious Growth Despite Pandemic

Summary

• Grit portfolio for the six months ended 31 December 2020 performed commendably, notwithstanding a very tough operating environment amid COVID-19.
• A disciplined approach to cost cutting resulted in an 8.1% increase in net operating income.

The importance of diversification

The age-old adage of not putting all one’s eggs in one basket has certainly paid off for London listed Grit Real Estate Income Group. The Company is a leading pan-African real estate company focused on investing in and actively managing a diversified portfolio of assets underpinned by predominantly US$ and Euro denominated long-term leases with high quality multi-national tenants.

Grit owns assets worth US$849.2m located across Mauritius, Mozambique, Morocco, Kenya, Zambia, Ghana, Botswana and Senegal and has since inception, in 2012, placed a strong emphasis on tenant strength and diversification, both from a geographic and asset class viewpoint.

Grit’s strategy of being a landlord of choice to international corporations seeking accommodation across Africa provides a natural hedge against exchange rate volatility, with 88.7% of its revenue earned from multinational tenants, and 93% of its revenue generated in hard currency (US$ or Euro or pegged currencies).

The Company’s results for the six months ended 31 December 2020 shows that notwithstanding a very tough operating environment as a result of COVID-19 uncertainty and the operational team’s inability to travel, the portfolio performed commendably. Although like-for-like revenue decreased by 6.2% due to rental concessions and deferrals, a disciplined approach to cost cutting resulted in an 8.1% increase in net operating income, together with the impact of acquisitions.

Its rental collections rate improved from 86% reported during the first four months of the pandemic to 91.4%, as the Group continued its focus on increasing liquidity and restoring balance sheet strength.

Part of these efforts include a strong emphasis on reducing Grit’s gearing, which contracted from 50.2% previously to 49.3% during the reporting period. The Group has set itself a near-term gearing target of 45%.

Total income producing assets grew by 3.1% to US$849.2 million during the reporting period, mainly driven by the stabilisation in property valuations, following material reversions across all property sectors in the prior financial year as a result of COVID-19.

Asset recycling and pipeline management

Despite challenging market conditions, Grit was able to successfully recycle some non-core assets, raising US$11 million. Further disposals of the tail-end of the portfolio are currently under consideration.

The Group tailored its acquisition pipeline to prevailing capital markets that are still dealing with the fall-out caused by the pandemic. As such, Grit will focus on defensive high-demand, high-growth real estate sectors including healthcare and logistics. Grit indicated that it will proceed with providing pre-funding for the development of the St Helene Hospital as well as the Coromandel Hospital in Mauritius. The sale and leaseback of a new light industrial warehouse in Nairobi, Kenya will also continue.

LSE Premium listing and redomiciliation paves the way for FTSE index inclusion

Earlier this year, Grit successfully migrated its corporate domicile to Guernsey from Mauritius. This migration, coupled with the Group’s recent transfer to a Premium listing on the London Stock Exchange, is expected to facilitate Grit’s inclusion in the FTSE indices. In turn, this is expected to raise Grit’s profile with investors, improve liquidity in the Company’s shares and place Grit in an enhanced position to fund its accretive investment pipeline.

Furthermore, Grit’s Premium listing places the Company firmly on the radar screens of international conglomerates seeking partnerships when it comes to their corporate real estate needs across the continent. This could include partnerships on new developments,  be it corporate accommodation, corporate offices, data centres, logistics and warehouse centres and hospitals. The Company has previously partnered with existing companies wanting to unlock their balance sheets through sale and leaseback transactions.

Grit’s in-country asset management capabilities further positions it well to partner with co-investors, where Grit will provide asset management services in addition to being a part-investor in the asset.

The premium listing position Grit well as an investment vehicle offering liquidity, African real estate expertise and sustainable returns.

Positioned for growth

Grit’s immediate focus will remain firmly on operations, especially further improvements in rent collection, the reduction of operating expenses and ensuring the long-term viability of its assets. The current portfolio occupancy rate of 92% is expected to improve once COVID-19 restrictions have been lifted and vaccination initiatives gain momentum, with several new rental contracts currently under negotiation.

Balance sheet strength remains a key priority for Grit as it continues to cautiously grow across asset classes and geographies. The Company aims to shore up its balance sheet through ongoing asset recycling initiatives, a reduction in debt levels as well as delivering on its acquisition of accretive assets and pre-funding developments.