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Grit Real Estate Inc - Disposal of 39.5% interest in Anfa & Update

RNS Number : 3654Z
Grit Real Estate Income Group
18 September 2020
 

GRIT REAL ESTATE INCOME GROUP LIMITED

(Registered by continuation in the Republic of Mauritius)

(Registration number: C128881 C1/GBL)

LSE share code: GR1T

SEM share code: DEL.N0000

ISIN: MU0473N00036

LEI: 21380084LCGHJRS8CN05

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

 

 

 

DISPOSAL OF 39.50% INTEREST IN ANFAPLACE MALL

BUSINESS, TRADING, NAV, RENT COLLECTION AND DIVIDEND UPDATE

APPOINTMENT OF NON-EXECUTIVE DIRECTOR

 

 

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 and actively managing a diversified portfolio of assets underpinned by predominantly US$ and Euro denominated long- term leases with high quality multi-national tenants, announces today that the Company entered into a binding agreement with Gateway Real Estate Africa Ltd ("GREA") for Grit to dispose a 39.50% interest in Delta International Bahrain SPC ("DIB"), the beneficial owner of AnfaPlace Mall ("Anfa") for a total transaction value of US$25,488,440 (the "Transaction"). Anfa forms part of a mixed-use complex on the Atlantic coast of Casablanca, Morocco.

 

The Company today also provides a business, trading, NAV, rental collection and dividend update and announces the appointment of a new Independent Non-Executive Director

 

Summary update

·      The Company disposes of a 39.50% indirect interest in AnfaPlace Mall, reducing its retail sector exposure to c.24.9%.

·      Extension of US$15 million bullet payment on Anfa debt facility to February 2022. The Company now has no material debt maturities before August 2021.

·      August rental collections of 98.5% of Grit attributable contracted lease income. New Mauritius Hotels Group (Beachcomber), which accounts for c.13.2% of the Group's attributable contracted rental revenue, resumed rental payments on 1 August 2020.

·      Redevelopment of the Company's light industrial asset in Pemba Mozambique, on the strength of a new five year US$ denominated triple net lease executed with Bollore Transport & Logistics ("Bollore"), for a total budgeted contract value of US$7.62 million

·      The Board now expects Net Asset Value per Share at 30 June 2020 to decline by between 18% to 22% predominantly as a result of downward valuations of its property portfolio (led mainly by the Company's retail sector exposure), increased provisions for financial liabilities and impairments of financial and other assets.

·      Group LTV is expected to be c.50.6% as at 30 June 2020. Movements in EUR exchange rates since that date have been supportive to NAV and LTV.

·      The Group's dividend distributions are currently under review by the Board, having regard to, among other things, the financial position, LTV ratio and performance of the Group (including the levels of rental income contracted and collected), levels of economic visibility and the long-term interests of shareholders.

·      Jonathan Crichton appointed as an Independent Non-Executive Director of the Company with effect from 17 September 2020.

·      The Company intends to release its abridged audited consolidated financial statements for the year ended 30 June 2020 on Monday, 26 October 2020.

Bronwyn Corbett, CEO of Grit Real Estate Income Group Limited, commented:

"We remain positive on the medium-term prospects for AnfaPlace Mall and the opportunities that recently promulgated Moroccan OPCIs (REITs) will provide for strong capital appreciation, liquidity and access to robust capital markets, however the uncertainty surrounding the impact of Covid-19, specifically in the retail sector, make it prudent for us to reduce our interest in the asset at this time. This is aligned with the Groups strategy to diversify from retail and focus on the industrial, corporate accommodation and office sectors, which we expect to continue to be more resilient and deliver enhanced value to our shareholders. The disposal will contribute to the rebalancing of our sector exposure with the sale reducing our retail exposure from 32.1% to c.24.9%.

 

Covid-19 has created a challenging backdrop, which has impacted Grit's business over the past six months, but we are continuing to take actions to ensure Grit remains financially robust with sufficient financial headroom and further strengthen its position to successfully navigate this period of economic uncertainty. The robust August rent collection of 98.5% leaves the Group increasingly confident in the Company's outlook.

 

The Group continues to focus on delivering its investment strategy and exciting growth opportunities that underpin the Company delivering attractive, secure and sustainable income and capital growth to our shareholders from across our high-quality portfolio over the short and longer term."

ANFA TRANSACTION DETAIL AND RATIONALE

Retail assets constituted 32.1% of Grit's total Net Asset Value as at 31 December 2019, above the Company's target sector exposure of 25%. The Covid-19 pandemic has introduced significant disruption to the operations of a number of the Group's retail assets and the Board believes it appropriate to bring overall retail exposure in line with its self-imposed targets.

·      Anfa has faced disruption as a result of its closure on 19 March 2020 due to the state of emergency declared by the Moroccan government. Trading resumed once again on 25 June 2020.

·      The three-month closure resulted in increasing vacancies and lower revenues as a result of rental concessions, while further concessions and rent deferrals for the period through to 31 December 2020 are being considered as the mall returns to normalised levels of trade.

·      Covid-19 lockdowns have resulted in delays in filling vacant space, and along with start date delays of new incoming tenants, reported vacancy statistics at 30 June 2020 have risen to c.21.3% from the reported figures of 11.7% at 31 December 2019

·      The Board remains positive on the medium-term prospects for the Mall, but now expects the recovery trajectory, post its relaunch in September 2019, to be delayed through the Company's next financial year.

·      Knight Frank, a RICS accredited valuer, has provided a valuation for Anfa at 30 June 2020 for the purposes of the Group's annual results for the year ended 30 June 2020 of US$89,363,300 ($109,110,000 at 31 December 2019). This represents a downward movement of 18.1% over the past six months as a result of changes to discount rates and net operating income assumptions (including delayed vacancy take up), predominantly expected over the next 24 months.

·       For the purposes of the Transaction, further independent RICS accredited valuations for Anfa were obtained, and a resulting valuation of US$87,500,000 was agreed in the computation of Freedom Property Fund SARL's ("Freedom Property Fund") total equity value (which includes group loans from Grit's 100% owned Mauritian finance company DIF1 Co Ltd ("DIF1")) of US$38,981,448 on 1 July 2020. Freedom Property Fund is the sole legal and beneficial owner of Anfa which is 99% owned by DIB.

·      The disposal of Grit's 39.50% interest in DIB was achieved through the equity injection of US$25,488,440 by GREA which relieved Grit of an obligation of an equivalent amount in liabilities that were due.  Grit receives no net cash from the disposal.

·      Following the completion of the Transaction, the Group's retail exposure is expected to fall to c24.9%

 

The Transaction, with an effective date of 1 July 2020, is to be executed through the issuance and subscription of Shares in DIB, which owns a 99% interest in Freedom Property Fund, for US$7,200, resulting in GREA owning a 39.5% equity interest in DIB. At the same time, GREA will subscribe for class B Preference Shares in DIF1, for a value of US$25,481,240 and Grit's shareholder loan in DIF1 will be converted to class C Preference Shares, thus matching the preference shares proportionately to the new effective shareholding in AnfaPlace Mall. Both classes of Preference Share will earn a coupon at a rate of 8% per annum, but the Class B Preference Shares held by GREA shall rank in priority to the Class C Preference Shares held by Grit Services Limited ("GSL") and to the remaining GSL Shareholder Loan. The final effective shareholding to be taken up by GREA in Anfa is subject to an adjustment account (to be based upon audited 30 June 2020 accounts), which is to be concluded by no later than 30 November 2020.

 

Investec Bank, the current debt financier to Freedom Property Fund, has approved GREA as a new incoming shareholder. A US$15 million bullet payment under this Investec facility, which was due for repayment on 31 October 2020, has been extended to 28 February 2022, the date on which the full facility matures.

 

When Grit listed on the standard segment on the main board of the London Stock Exchange ("LSE"), the Board voluntarily elected to comply with the provisions of Chapter 10 and certain aspects of Chapter 11 of the UK's listing rules. GREA (an associated company in which Grit holds a 19.98% interest) is a private real estate development company and is regarded as a related party by virtue of common shareholding by the Public Investment Corporation of South Africa, and as such, the Board has followed its policy as laid out on pages 33-34 of the Company's 2018 listing document which included inter alia independent fairness valuations and Board approval.

 

The Transaction does not fall within the scope of Chapter 13 of the Listing Rules of the Stock Exchange of Mauritius Ltd ("SEM") relating to 'related party transactions'.

AUGUST RENT COLLECTION AND TRADING

·      As a percentage of Grit's attributable contracted rental revenues for August 2020, the Group has collected 98.5% of rentals due for the month and has provided rental concessions (and therefore loss of revenue) of 3.4%.

·      For the period March to July 2020, the Group collected 85.4% of the value of its attributable contracted rental revenue

·      New Mauritius Hotels Group (Beachcomber), which accounts for c.13.2% of the Group's attributable contracted rental revenue, resumed rental payments on 1 August 2020.

PIPELINE AND ASSET MANAGEMENT UPDATE

The Company has extended the target execution dates on all of its announced pipeline opportunities and is assessing each one of these in the context of Covid-19 impacts, return profiles and capital allocation options including, inter alia, co-development and co-funding models. 

All announced pipeline opportunities are still under negotiation and in certain instances announced terms may change. Further announcements on these will be made in due course.

The Company has entered into a turnkey development agreement for the redevelopment of its light industrial asset in Pemba Mozambique on the strength of a new five year USD denominated triple net lease executed with Bollore Transport & Logistics ("Bollore"). The project entails a significant repurposing of the asset according to agreed tenant specifications for a total budgeted contract value of US$7.62 million. Upon completion, the lettable area of the asset will have increased from 4817sqm to 7486sqm (a 55% increase in the total lettable area). Sectional completion of the works, which will trigger the commencement of the new Bollore lease agreement, is expected in Q1 2021, with final completion of the remaining areas targeted for Q4 2021.

UPDATED NAV AND DIVIDEND GUIDANCE

Ahead of the release of the Company's abridged audited results, the Board now expects Net Asset Value per Share at 30 June 2020 to decline by between 18% to 22% predominantly as a result of downward valuations of its property portfolio (which has been effected by the Covid-19 pandemic and movements in foreign currencies against the US Dollar), increased provisions for financial liabilities and impairments of financial and other assets.

 

The portfolio continues to experience the greatest Covid-19 disruption in the retail and hospitality sectors, while the corporate accommodation, office and light industrial segments have seen only limited impact to date. The expected movement in property valuations as at 30 June 2020, are summarised as follows:

 

Sector *

Valuation 31 December 2019

(US$ 'm)

Like for like valuation movements to 30 June 2020

Office

201.9m

-1% to 2%

Corporate Accommodation

139.2m

0% to -1%

Light Industrial

27.8m

-1.5% to -2.5%

Hospitality

151.5m

-4% to -5%

Retail

259.6m

-16% to -17%

 *excluding LLR and development assets

 

Group LTV is now expected to be c.50.6% at 30 June 2020 while the Company's lowest currently imposed LTV covenant stands at 53%. As a precautionary measure, the Company continues to engage with its lenders on the extension of LTV and interest cover covenants and expects to make announcements in this regard in the coming weeks.

 

Movements in EUR exchange rates since 30 June 2020 have been supportive of NAV and LTV. The Group's medium-term target is an LTV of between 35% and 40% and the Board is currently considering a number of strategies to achieve this target over the next 24 months including further asset sales, accessing government support programmes and other funding instruments to fund growth.

 

Post the Anfa bullet payment extension, the Company has no material debt maturities before August 2021.

 

In light of recent events, and until we have greater clarity on the economic outlook, dividend distributions of the Group are under review by the Board, having regard to, among other things, the financial position, LTV and performance of the Group (including the levels of rental income contracted and collected), levels of economic uncertainty and the long-term interests of shareholders.  

EXTENSION OF DEADLINE TO RELEASE AUDITED FINANCIAL RESULTS

As a result of the Covid-19 pandemic, the UK's Financial Conduct Authority has temporarily granted LSE Main Market listed companies the option to delay the publication of annual audited financial reports from four to six months after the end of their financial year end, and have urged companies to avail themselves of the additional two month period to fully assess the impact that Covid-19 may have on their businesses.

 

The SEM Listing Rule 12.14 requires the publication of the Company's abridged audited consolidated financial statements within the 90 days after the end of its financial year, i.e. by Wednesday, 30 September 2020. The Company has obtained formal approval from the SEM to delay the publication of its abridged audited consolidated financial statements until Friday, 30 October 2020.

 

The Company intends to release its abridged audited consolidated financial statements for the year ended 30 June 2020 on Monday, 26 October 2020.

APPOINTMENT OF NEW INDEPENDENT NON-EXECUTIVE DIRECTOR

The Board is pleased to announce that Jonathan Crichton has been appointed as an Independent Non-Executive Director of the Company with effect from 17 September 2020.

 

Mr. Crichton has extensive international banking experience as a senior executive across Asia, Europe and the United Kingdom within the HSBC Holdings Group and has been a member of numerous risk and audit committees. He is currently an Independent Non-Executive Director of MCB Ltd.

 

By Order of the Board

 

18 September 2020

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

Grit Real Estate Income Group Limited

 

Bronwyn Corbett, Chief Executive Officer

+230 269 7090

Darren Veenhuis, Head of Investor Relations      

+44 779 512 3402

 

 

Maitland/AMO - Communications Adviser

 

James Benjamin

+44 20 7379 5151

Jason Ochere

[email protected]

 

 

finnCap Ltd - UK Financial Adviser

 

William Marle / Giles Rolls / Matthew Radley (Corporate Finance)

+44 20 7220 5000

Mark Whitfeld / Pauline Tribe (Sales)

+44 20 3772 4697

Monica Tepes (Research)

+44 20 3772 4698

 

 

Perigeum Capital Ltd - SEM Authorised Representative and Sponsor

 

Shamin A. Sookia

+230 402 0894

Kesaven Moothoosamy

+230 402 0898

 

 

Capital Markets Brokers Ltd - Sponsor Broker

 

Neetusha Aubeeluck

+230 402 0285

 

 

NOTES:

Grit Real Estate Income Group Limited is the 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). 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 is targeting net total shareholder return inclusive of NAV growth of 12.0%+ p.a.*

 

The Company holds its primary listing on the Main Market of the London Stock Exchange (LSE: GR1T), while its listing on the SEM is termed as a secondary listing (SEM: DEL.N0000).

 

Further information on the Company is available at http://grit.group/

 

*               These are targets only and not a profit forecast and there can be no assurance that they will be met. Any forward-looking statements and the assumptions underlying such statements are the responsibility of the Board of Directors and have not been reviewed or reported on by the Company's external auditors.

 

Directors:

Peter Todd+ (Chairman), Bronwyn Corbett (Chief Executive Officer)*, Leon van de Moortele (Chief Financial Officer)*, Sir Samuel Esson Jonah+, Nomzamo Radebe, Catherine McIlraith+, David Love+, Jonathan Crichton+ and Bright Laaka (Permanent Alternate Director to Nomzamo Radebe).

 

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

 

Company secretary: Intercontinental Fund Services Limited

Registered address: c/o Intercontinental Fund Services Limited, Level 5, Alexander House, 35 Cybercity, Ebène 72201, Mauritius

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

UK Transfer secretary: Link Asset Services

Limited 

SEM authorised representative and sponsor: Perigeum Capital Ltd

 

This notice is issued pursuant to the LSE Listing Rules, Article 19 of MAR, SEM Listing Rule 11.3 and Rule 5(1) of the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007.  The Board accepts full responsibility for the accuracy of the information contained in this communiqué.

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