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Interview with Bronwyn Corbett, CEO of Grit Real Estate Income Group (LON: GR1T)

Grit Real Estate Income Group (LON: GR1T) is a prominent real estate company with a presence across Africa (excluding South Africa), focussing on investing and actively managing a diversified portfolio of assets reinforced by mainly USD and Euro denominated long-term leases with high-quality multinational tenants in judiciously selected countries. The Group’s portfolio comprises a diverse range of asset classes including corporate offices, retail, hospitality, light industrial and corporate accommodation.

Kalkine Media conducted an interview with Bronwyn Corbett, CEO of Grit Real Estate Income Group:

  1. Can you provide an overview about Grit and its business activities?

Grit Real Estate Income Group (“Grit” or “the Company”) is a leading pan-African real estate company focused on investing in and actively managing a diversified portfolio of assets in carefully selected African countries (excluding South Africa).

The Company holds a primary listing on the standard segment of London Stock Exchange main market, and a secondary listing on the Stock Exchange of Mauritius official market.

Grit’s high-quality assets are underpinned by predominantly US Dollar, and Euro denominated long-term leases with a wide range of blue-chip multi-national tenant covenants across a diverse range of robust property sectors including corporate offices, retail shopping centres, hospitality assets, logistics and distribution warehouses and corporate accommodation.

The Company is committed to delivering strong and sustainable income for shareholders, with the potential for income and capital growth.

Grit’s business model is founded on counterparty strength, as the Company mainly contracts with a robust blue-chip multinational tenant base, backed by guarantees. Rental contracts are mainly denominated in Euro or US Dollar, with long lease tenures.

The Group maintains a self-imposed soft exposure limit of 25% of total portfolio gross asset value to any asset class or country of operation, in order to diversify risk.

Grit unlocks value for shareholders through three revenue streams:

- Rental income through property investment, focusing on completed income producing assets;

- Pre-funded property development, limited to 20% of gross asset value, allowing risk-mitigated participation in the development upside; and

- Potential co-investment and property management services.

  1. The company, despite a challenging COVID-19 situation, managed to post a resilient performance for the year, now which major steps are being taken to enhance shareholders return?

COVID-19 has given rise to uncertainty which we expect to continue in the near term. Our corporate accommodation, office and light industrial assets remain largely unaffected by impacts as a result of the pandemic.

Our Board is focused on ensuring Grit remains financially robust with sufficient headroom to successfully navigate this period of economic uncertainty. Although our modelling shows that we have adequate financing facilities through to December 2022, several major steps have already been implemented to ensure that shareholder returns are enhanced.

This includes the implementation of a cost optimisation programme that will save the Company approximately US$3m annually. We also continue to focus strongly on rent collection, and I am proud to share with you that c.90% of the value of our rentals from July to October have been collected. The management team is driving the filling of vacancies aggressively, and we have seen some good traction in this regard.

Our funders have been pragmatic and supportive of our initiatives and have lifted our debt covenants to 55% for further headroom. We have also extended debt maturities and secured additional liquidity facilities.

From a capital recycling perspective, we successfully disposed of a portion of our interests in two assets, being AnfaPlace Shopping Centre in Morocco and Acacia Estate, a corporate accommodation complex in Mozambique. The proceeds from these disposals were used to reduce debt and for investment in NAV accretive projects.

Apart from our portfolio optimisation, we are focusing on improving liquidity through possible index inclusion, on completion of our step-up to a Premium Listing on the London Stock Exchange. 

Important to note is that in addition to retaining distributions during this period, senior management has also agreed to temporary salary reductions.

Should current circumstances remain stable or improve, the Board expects to resume dividends in the current financial year (year ended 30 June 2021).

  1. Tell us about your Hospitality and retail assets; there were some concessions provided in the early part of the pandemic, what has been the impact?

Our hospitality assets are concentrated in Mauritius and Senegal and represent 21% of Grit’s total net asset value (as at 30 June 2020).

Legislation in Mauritius put a moratorium on rental collections until September 2020, which effectively meant a 6-month delay in rental payments. This impacted cashflow for the period.

Grit doesn’t assume any direct hospitality exposure and our assets are leased by some of the largest names in the industry under long leases. In Mauritius, these strong counterparties resulted in us being able to resume collections materially in the third quarter of 2020.

We also applied a pragmatic approach in collaboration with our hospitality tenants during the lockdown, bringing forward refurbishment and renovation schedules to make use of the low occupancy levels.

In Senegal, the rental deferment agreed with Club Med remains in place until the end of the calendar year. We have furthermore agreed to revise our development programme budget of €3.3m to include only key refurbishment work to allow for a targeted re-opening in the first quarter of 2021. The second phase of the development will take place in 2021.

From a retail perspective, our assets are located in Morocco, Zambia, Mozambique, and Kenya and represents 28% of Grit’s total net asset value (as at 30 June 2020).

It is important to differentiate between the impact of the pandemic on large, enclosed regional malls vs convenience strip malls. Our shopping centre in Morocco is an upmarket regional mall located in a prime residential area. The trend worldwide has been for regional centres to be more severely impacted by lockdown measures, due to the tenant mix and offering that includes food and entertainment as well as discretionary goods to a larger extent.

The Moroccan asset was largely affected by lockdowns and could only resume partial trading in June 2020.

Convenience retail centres and strip malls, on the other hand, have been less impacted due to their anchor tenants mainly consisting of essential goods providers that have been able to trade despite lockdown measures.

Our Kenyan and Mozambican portfolios were relatively less affected by the pandemic, whilst the weakened economy and COVID-19 has led to isolated tenant stress in Zambia.

Vacancies increased during the period as a result of economic weakness, although reletting activity has picked up, especially in Mozambique.

  1. Can you please shed some light on rent collections so far and how are things looking going forward?

Our corporate accommodation, commercial offices and light industrial assets remain largely unaffected by the impacts of COVID-19. These assets contribute approximately half of Group revenue.

Current rent collection trends remain encouraging at c.90% of invoiced amounts, supported by the resumption of hospitality sector rental payments.

  1. How well is East Africa placed amid the company’s multi-asset multi-geography strategy?

The Eastern sub-region of Africa remains an important foothold for Grit. We are already operational in the region with assets in Kenya, Mauritius, Mozambique, and Zambia. The Company’s strategy will likely be to expand on its footprint in current countries of operation, and we see especially Kenya as playing a key role in this with a high demand for logistics and warehouse assets.

The implementation of the African Continental Free Trade Area (AfCFTA) in January 2021 further bodes well for intercontinental trade, which we believe will support demand for real estate in future.

  1. How is the process going for a Premium segment listing in London?

This process is tracking well, and in line with the guidance, we provided to the market. We remain positive of achieving the step-up listing and redomiciling in Guernsey by the first quarter of the 2021 calendar year.

In addition to attracting a corporate governance premium, the step-up listing is in support of our efforts to improve liquidity through index inclusion and further diversifying the shareholder base.

  1. Any major asset acquisition in the pipeline, which you would like to share?

Yes, despite the challenges of COVID-19, we continued to develop our asset pipeline that will see us further diversify into the healthcare sector. This defensive asset class is expected to significantly futureproof the business. To this end, we are negotiating the acquisition of a 43.3% interest in the St Helene Hospital, as well as the Coromandel Hospital in Mauritius, respectively.

In line with expanding our East African footprint, we are also negotiating on an industrial warehouse asset in Nairobi, Kenya.

We have furthermore embarked on significant development activity of our logistics assets in Mozambique and Kenya, as well as the longer-term re-development of our key hospitality asset in Senega, that will support NAV-uplift in the longer term.

  1. Finally, how optimistic you are for the next year?

Although the longer-term impact of COVID-19 has not been quantified yet, we remain cautiously optimistic that the measures we implemented, and the defensiveness of our portfolio will stand us in good stead.

Current collection rates are strong, and the effective management of our assets hedged us against significant valuation reversions, other than the retail sector. To this end, we have already reduced our exposure to that sector.

Going forward, our investment strategy will focus on including more resilient, essential, and high-growth assets such as healthcare.

I believe that the suspension of our distribution and concomitant salary cuts by senior management is a temporary but necessary measure to protect and strengthen the business in light of the pandemic and remain confident of our progress towards improved liquidity and the resumption of dividend payments in 2021.


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