Bronwyn Knight, CEO of Grit Real Estate Income Group, provides valuable insights into the group’s existing operating model and diversification strategy that has facilitated robust operations. Additionally, she offers an overview of the dynamic African real estate sector.
What can you tell our readers about Grit and its activities?
Grit is a London and Mauritius-listed specialist in African Impact real estate. The Group invests in, develops and creates smart solutions in resilient property sectors across the continent for its multinational clients, tenants and investors.
Since its inception in 2014, Grit has evolved from income to impactful income. Its substantial real estate footprint has resulted in an unparalleled depth of experience in Africa, which forms the foundation of its real estate solutions that go beyond buildings.
Today the Group operates in 12 African countries (excluding South Africa) and owns 60 assets across seven sectors, collectively valued at over USD 830 million. These properties, and the Group’s development projects, are let to high-quality multinational corporates in predominantly US Dollars, Euro’s or pegged currencies, which helps underpin the Group’s annual USD return targets of 13% – 15%.
Grit generates sustainable long-term returns from its own investments and by monetising its extensive Intellectual Property across the entire real estate value chain for the benefit of all stakeholders, including the people of Africa. At the current share price, Grit is yielding in excess of 12% US Dollar dividend yield.
How has the pandemic impacted Grit’s operations?
Diversification plays a large role in Grit’s risk mitigation strategy. This includes geographical diversification across the African continent and asset class diversification. During the pandemic, different countries implemented different levels of economic lockdowns, which impacted operations to varying degrees.
It should be remembered that retail on the continent faced cyclical and structural shifts before the pandemic, which were amplified during economic lockdowns. This asset class, alongside the hospitality sector (due to travel bans) was the most impacted. The balance of our portfolio comprising corporate offices, consular accommodation and light industrial proved exceptionally defensive asset classes during the pandemic, with rent collections, occupancy rates and tenant retention staying above 90% throughout. Because the retail and hospitality assets collectively accounted for approximately 50% of our portfolio at that time, the Board chose a more conservative balance sheet strategy to navigate the effects of the crisis, the fruits of which are being enjoyed today as we are poised for exciting post-pandemic growth opportunities.
Fortunately, recovery in the hospitality sector has been swift due to global pent-up vacation demand following the lifting of travel bans. Grit’s arrear rentals have now all been caught up and with improving occupancy levels, valuations in this sector have broadly reverted to pre-crisis levels. Retail has also shown good recovery, with demand from international and local retailers increasing steadily in line with vastly improved footfall statistics across our assets.
What led Grit to disengage from BHI?
Our joint venture with New Mauritius Hotels (NMH) set new benchmarks in the real estate sector when it was formed in October 2016, particularly with regards to sale-and-leaseback structures and the recapitalization of NMH at the time.
Our relationship has since been guided by a “family of partnerships” approach, allowing both parties to have an impact that transcends buildings, especially during the pandemic-related economic lockdowns.
With the resurgence in the hospitality sector, the BHI Board has developed some very exciting growth strategies and further opportunities to unlock value for shareholders. These plans would, however, have resulted in a breach of Grit’s self-imposed sector concentration limits and this transaction, therefore, provides for Grit’s strategic exit whilst maintaining a strong relationship with BHI. Grit will not completely exit the sector, as we still hold hospitality assets in Bel Ombre, Mauritius and in Senegal.
The scheme of arrangement amicably and equitably acknowledges Grit and BHI’s divergent strategies as Grit focuses on resilient African impact assets and BHI embarks on a hotel and tourism sector growth strategy, creating a larger and more diversified portfolio across market segments.
Grit has a total of 60 investments in 12 African countries, with exposure to seven real estate asset classes. Which countries are offering the most promising investment prospects?
Our portfolio is split between countries with high investment grade ratings and countries with high growth potential. Each country offers different but equally exciting investment prospects. If I had to single out some, I am particularly excited about our developments in Mauritius, where we’ve recently completed the first 5-Star Greenstar rated office in the Indian Ocean Island region and Kenya, which is widely regarded as the gateway to East Africa.
Grit also announced its intention to sell the balance of its investment in the Botswana-listed mortgage company Letlole La Rona. What was the motivation behind this decision?
The disposal is in line with Grit’s decision to exit investments where it does not have majority control or where it has significant exposure to currencies other than US dollar, Euro, or hard currency-pegged revenue streams.
Since Grit’s original investment in 2019, LLR has delivered strong value to all stakeholders. This was supported by Grit’s direct real estate involvement and governance benchmarks implemented alongside fellow shareholders of reference and partners, including the Botswana Development Corporation.
During Grit’s tenure, we actively maintained LLR’s ability to pay dividends at a minimum of 80% of distributable cash flows and played a catalytic role in the company’s Go-to-Africa strategy, with LLR now having access to hard currency income from the African market.
Our track record shows significant shareholder value unlock, with LLR trading at a 25% discount to net asset value at the time of Grit’s initial investment, to a 10% premium to NAV today.
We remain committed to exploring co-investment opportunities with LLR and will continue to invest in Botswana and the broader region with a focus on impact real estate assets which is expected to deliver near and longer-term value creation and growth opportunities in net asset value and income.
What motivated Grit to increase its stake in Gateway Real Estate Africa?
Our increased stake and control of GREA’s asset manager, Africa Property Development Managers is expected to materially accelerate Grit’s ability to access development returns from risk-mitigated development projects which will introduce the potential for new revenue and fee income streams for the Group.