REG-Grit Real Estate Income Group Asset Disposal and strategy update

Grit Real Estate IncomeAnnouncement

02/09/2024 07:15

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   Grit Real Estate Income Group (GR1T)
   Asset Disposal and strategy update

   02-Sep-2024 / 07:00 GMT/BST

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   GRIT REAL ESTATE INCOME GROUP LIMITED

   (Registered in Guernsey)

   (Registration number: 68739)

   LSE share code: GR1T
                                                                             
   SEM share codes (dual currency trading): DEL.N0000 (USD) / DEL.C0000
   (MUR)

   ISIN: GG00BMDHST63

   LEI: 21380084LCGHJRS8CN05

   ("Grit" or the "Company" or the "Group")

    

    

                       ASSET DISPOSAL AND STRATEGY UPDATE

                                        

    

   The Board of  Directors (the  "Board") of  Grit Real  Estate Income  Group
   Limited, a  leading pan-African  income real  estate company,  focused  on
   investing in, developing and actively managing a diversified portfolio  of
   assets underpinned  by predominantly  US$ and  Euro-denominated  long-term
   leases with  high-quality multi-national  tenants, is  today providing  an
   update on  its  non-core asset  disposal  strategy and  progress  made  on
   transactions.

    

   Executive summary

     • The Board remains committed to a high quality diversified real  estate
       portfolio  underpinned  by  predominantly  US$  and   Euro-denominated
       long-term leases with  high-quality multi-national  tenants. The  Grit
       2.0 strategy  targets  a medium-term  annual  total return  target  of
       12%-15%  through focusing on resilient  and impact sectors where  Grit
       can capture accretive development margins.

    

     • With the backdrop of the challenging macro-economic environment, the
       Board last year indicated an acceleration of non-core asset disposals
       to strengthen the balance sheet (through debt reduction) and to
       position the Group for opportunities in its strategic focus areas. The
       Board is pleased to provide this update:

    

     ◦ Non-binding heads of terms have been signed for the disposal of
       Tamassa resort, a Mauritian hospitality asset at an implied net
       initial yield of 6.5% (excluding potential variable rentals).
     ◦ The Group is currently in preliminary discussions with external
       parties for the disposal of a further 4 non-core retail and
       non-strategic corporate accommodation assets.

     ◦ Proceeds from the sale of these assets will be used to reduce the
       Company’s more expensive debt facilities.
     ◦ The Group’s development subsidiary is exploring opportunities to merge
       its Diplomatic Housing assets with Verdant Ventures, a strong industry
       player, providing the combined entity with scale and opportunity for
       increased exposure in this resilient sector.  

    

   Bronwyn Knight, CEO of Grit, commented:

   “Grit continues to focus on refining its real estate portfolio and intends
   to apply proceeds from completed asset disposals to Group debt level
   reductions. The signing of heads of terms for the disposal of Tamassa
   resort demonstrates strong progress towards these targets and positions us
   for future growth in resilient sectors like embassy accommodation, where
   the Group are also exploring options to merge DH Africa with Verdant
   Ventures in a transaction that will position DH Africa as the leader in
   turnkey diplomatic housing solutions across the African continent for the
   US, UK and other governments.”

    

   Asset disposals and capital allocation

   In 2022 Grit embarked on an in-depth analysis of the returns of each of
   its assets and earmarked non-core properties for disposal. The Group
   achieved its initial $160 million disposal target and has redeployed these
   proceeds to the acquisition of GREA and to Group debt reduction. The
   impacts of these actions are increasingly evident in Grit’s operating
   performance where contributions to net operating income (“NOI”) from the
   hospitality sector and LLR have materially reduced and are being replaced
   with NOI from GREA completed assets in the healthcare, data centre, light
   industrial and office sectors.

    

   Earlier this year  the Board  extended the asset  disposal strategy,  with
   proceeds principally  earmarked  to  reduce  Group  debt.  Four  immediate
   opportunities have been  identified in the  non-core portfolio,  including
   retail, corporate accommodation and hospitality asset disposals.

    

   Proposed disposal of Tamassa Resort

   Non-binding heads  of terms  have  been signed  for  the disposal  of  the
   Tamassa Resort, a 4-star resort and spa located in the south of Mauritius,
   at an  implied net  initial yield  of 6.5%  (excluding potential  variable
   rentals). Acquired in March 2017 for US$40.0 million and leased to the Lux
   Island Resorts Ltd, Tamassa has consistently been a high-performing asset.

    

   Hospitality is  however a  non-core  sector and  the Board  believes  this
   transaction could present a good opportunity to realise its current  value
   and apply  the  net sales  proceeds  to  reduce the  Company's  debt.  The
   transaction is expected to be concluded  by the end of December 2024  upon
   which Grit’s exposure to the hospitality sector (by value) is expected  to
   fall  to  below  4%.  Further  updates  will  be  provided  when   binding
   transaction agreements have been executed.

    

   Other targeted disposals

   A number of other retail and non-strategic corporate accommodation  assets
   across the  Group  are  currently  the subject  of  early  stage  disposal
   discussions. These assets are regarded as non-core sector assets,  however
   transactions will  only be  concluded  if the  appropriate values  can  be
   achieved. Exposure to the  retail sector would  be materially reduced  and
   proceeds applied towards debt repayments. Further updates will be provided
   later this year.

    

   REPOSITIONED FOR GROWTH IN THE MEDIUM TERM

   Grit’s 2.0 strategy, implemented over the past 24 months, is resulting  in
   a simplified  operational  structure  and is  positioning  the  Group  for
   substantial capital  value  and  income growth  from  existing  and  newly
   developed impact assets with long-term  hard currency leases. The  Group’s
   real  estate   assets  are   now  largely   grouped  into   sector-focused
   subsidiaries, with  the more  extensive future  development  opportunities
   positioned  within  GREA  (the  Group’s  development  subsidiary).   These
   include:

    

     • Light industrial and logistics assets (Bora Africa),
     • Diplomatic housing assets (DH Africa),
     • ICT-related  assets,  such  as  data  centres  and  Business   Process
       Outsourcing (“BPO”) facilities (within Bora Africa), and
     • Healthcare assets (Healthcare Africa).

    

   GREA is  positioned to  deliver the  pipeline of  developments,  targeting
   minimum internal rates of return in excess of 16%, that will provide  Grit
   substantial net asset value  and earnings growth  once completed and  once
   rental income streams have stabilised. Moreover, Grit will manage most  of
   these assets through Grit Real Estate Services, earning additional revenue
   income. Further strategy updates in relation to these sector vehicles  are
   presented below:

    

   Diplomatic Housing Africa (DH AFRICA) – currently 100% owned by GREA

   Proposed merger with Verdant Ventures

   GREA  is  currently  in  discussions  with  US-based  diplomatic   housing
   developer, Verdant Ventures (“Verdant”) on a possible merger of DH  Africa
   and Verdant,  with  GREA expected  to  take  a majority  interest  in  the
   enlarged entity. GREA and Verdant co-developed the award-winning Elevation
   Diplomatic Residences  in Addis  Ababa, Ethiopia  as well  as the  Rosslyn
   Grove Diplomatic Apartment and Townhouse Complex in Nairobi, Kenya.

    

   A Framework agreement has  been signed and the  proposed merger will  see,
   upon conclusion,  Verdant transfer  its interest  in Elevation  Diplomatic
   Residences in Ethiopia and Rosslyn Grove  in Kenya for an interest in  the
   merged entity.  These assets  are currently  50% owned  by GREA  and  were
   previously accounted for as associates.

    

   The merger will provide impetus to the Grit 2.0 “co-investment”  strategy,
   with a much  larger and  sustainable substructure,  including an  enhanced
   focus on its main tenant (and one of the Group’s largest clients), the  US
   Government. Further  details on  valuations,  expected balance  sheet  and
   financial impacts  will  be  announced  in  due  course,  should  a  final
   transaction be concluded.

    

   Industrial sector assets (Bora Africa)  – 100% owned by GREA

   Mezzanine financing update

   The International  Finance  Corporation (a  division  of the  World  Bank)
   subscribed for a 9 year $16.8  million perpetual preference note in  April
   2024. The note carries a coupon of 6 month SOFR + 300bp, with the proceeds
   applied to the acquisition  of African Data Centres  phase 1 from GREA  at
   the most recent independently appraised  valuation of $28.0 million.  This
   transaction positions Bora for further ADC data centre projects, which can
   be funded directly off the Bora Africa balance sheet.

    

   Bora  is   also   in   advanced  discussions   with   British   Investment
   International, the UK government  funded development finance  institution,
   for an equivalent perpetual preference note subscription, the proceeds  of
   which are expected to be applied towards both the acquisition of completed
   assets and to fund prospective pipeline.

    

   These mezzanine financing instruments are accounted as equity  instruments
   under IFRS  and are  expected to  fund  the long  term future  growth  and
   furthering of the Bora strategy.    

    

   By Order of the Board

    

   2 September 2024

    

   FOR FURTHER INFORMATION, PLEASE CONTACT:

   Grit Real Estate Income Group Limited                      
   Bronwyn Knight, Chief Executive Officer                   +230 269 7090
   Group Investor Relations                                  IR@grit.group
                                                              
   Cavendish Capital Markets Limited - UK Financial Adviser   
   James King /Teddy Whiley (Corporate Finance)              +44 20 7220 5000
   Justin Zawoda-Martin / Daniel Balabanoff/Pauline          +44 20 3772 4697
   Tribe (Sales)
                                                              
   Perigeum Capital Ltd - SEM Authorised Representative and   
   Sponsor
   Shamin A. Sookia                                          +230 402 0894
                                                              
                                                              
   Capital Markets Brokers Ltd - Mauritian Sponsoring Broker  
   Elodie Lan Hun Kuen                                       +230 402 0280

    

   NOTES:

   Grit Real Estate Income  Group Limited is  the leading pan-African  impact
   real estate  company  focused on  investing  in, developing  and  actively
   managing a diversified portfolio of  assets in carefully selected  African
   countries  (excluding  South  Africa).   These  high-quality  assets   are
   underpinned by  predominantly US$  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.

   The Company is committed to  delivering strong and sustainable income  for
   shareholders, with  the  potential  for income  and  capital  growth.  The
   Company holds its primary listing on  the Main Market of the London  Stock
   Exchange (LSE: GR1T and a dual  currency trading secondary listing on  the
   Stock Exchange of Mauritius (SEM: DEL.N0000 (USD) / DEL.C0000 (MUR))

   Further information on the Company is available at www.grit.group

   Directors: Peter Todd (Chairman), Bronwyn Knight (Chief Executive Officer)
   *, Gareth Schnehage (Chief Financial Officer) *, David Love+, Catherine
   McIlraith+, Jonathan Crichton+, Cross Kgosidiile, Lynette Finlay + and
   Nigel Nunoo+.

   (* Executive Director) (+ independent Non-Executive Director)

   Company secretary: Intercontinental Fund Services Limited

   Registered office address: PO Box 186, Royal Chambers, St Julian's Avenue,
   St Peter Port, Guernsey GY1 4HP

   Registrar and  transfer  agent (Mauritius):  Intercontinental  Secretarial
   Services Limited

   SEM authorised representative and sponsor: Perigeum Capital Ltd

   UK Transfer secretary: Link Assets Services Limited

   Mauritian Sponsoring Broker: Capital Markets Brokers Ltd

   This notice is issued pursuant to the FCA Listing Rules, SEM Listing  Rule
   15.24 and the  Mauritian Securities  Act 2005.  The Board  of the  Company
   accepts full responsibility for the accuracy of the information  contained
   in this communiqué.

    

    

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   Dissemination of a Regulatory Announcement, transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   ISIN:          GG00BMDHST63
   Category Code: DIS
   TIDM:          GR1T
   LEI Code:      21380084LCGHJRS8CN05
   Sequence No.:  344007
   EQS News ID:   1979035


    
   End of Announcement EQS News Service

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