Grit Real Estate has provided a further update on the progress of its acquisition of majority controlling stakes in African property developer, Gateway Real Estate Africa (GREA), and its external asset manager, APDM, following its agreement to certain amendments to the existing sale and purchase agreements which were subject to an extended long-stop date (8th April 2022).
The acquisitions were being pursued in conjunction with an open offer and placing of new ordinary shares at an issue price of US$0.52 cents per ordinary share to reduce Grit’s overall debt and to provide future capital for the growth of Grit’s core and expanded business.
On the 20th of December 2021, Grit issued 146 342 312 new ordinary shares at the issue price, raising gross proceeds of US$76.1 million.
“We are pleased to announce today the acquisition of a majority controlling interest in APDM and to agree amendments to the sale and purchase agreements that set out a clear path for Grit to purchase a controlling shareholding in GREA by December 2022”, commented Bronwyn Knight, CEO of Grit.
“These are expected to contribute meaningfully to Grit delivering enhanced profitable growth and superior returns to our shareholders, through GREA’s extensive attractive pipeline of accretive development opportunities and for Grit to capitalise on new fee income streams through APDM’s substantial development and asset management fees. We also expect to deliver additional value to our shareholders from the potential optimisation of the balance sheets of Grit and GREA”.
“We continue to be well positioned to capitalise on the significant recovery potential across Grit’s unique high-quality property portfolio. As a Board, we expect significant further potential value to be created through increasing Grit’s capital allocation to limited, risk mitigated development returns through servicing existing and target tenants.”
Grit today (11th April 2022) increased its stake in GREA from 19.98% to 26.29% through the acquisition of private equity firm Gateway Partners’ 6.21% interest in the African property developer for a cash consideration of US$13.86 million and a vendor placement of 423,616 new ordinary shares at the issue price to another shareholder for their 0.10% holdings in GREA.
Grit will further increase its shareholding in GREA by 8.72% to 35.0% for a further payment of US$19.44 million to Gateway Partners by the 31st of July 2022. Gateway Partners has the option to be paid in cash or through the issue of new ordinary shares at the issue price. Grit will therefore, at this time, not gain control of GREA as envisaged.
Gateway Partners however provided the company with a further option to acquire their remaining 13.61% interest in GREA for cash or the issue of new ordinary shares at the issue price, by the 15th of December 2022. If successfully concluded, this will take Grit’s interest in GREA to 48.62%.
Additionally, on achieving minimum performance requirements, APDM (GREA’s asset manager in which Grit acquired a majority stake) is entitled to a free carry of 10% of GREA, to be measured and issued at years five and seven or on a defined exit event, which the option exercise is expected to be. This would increase Grit’s stake to 51.66% of the total shareholding in GREA, once the APDM free carry shares are issued. GREA’s five-year anniversary from inception is December 2022.
“The acquisition of GREA will bring a large range of benefits for Grit, including a fully funded existing pipeline which is expected to deliver strong NAV growth as projects complete over the next 24 to 36 months”.
“GREA additionally has access to further extensive pipeline of NAV accretive US Bureau of Overseas Building Operations (“OBO”) diplomatic housing and data centre development opportunities. Both asset classes are seen as exceptionally resilient and offer exposure to highly rated tenants to underpin future income levels”.
“Grit will have the ability to significantly influence (and ultimately control, should it exercise the call option) additional value creating activities such as balance sheet optimisation. If GREA, for instance, is consolidated into Grit, this will materially reduce Grits loan-to-value (LTV) due to GREA’s low leverage. In addition, Grit’s cost of debt is much lower than that of GREA, which provides an opportunity to amortise and replace GREA’s expensive construction debt facilities with cheaper debt funding, recycling operational cashflow into new projects as opposed to debt repayments,” Knight added.
Grit has also acquired control of GREA’s external asset manager, APDM, by acquiring a 77.95% interest. This is to be settled through a vendor placement of 17,090,865 new ordinary shares for an aggregate 47.37% interest and a cash payment of US$7.59 million to Gateway Partners for their 30.58% interest. This is a change to the original agreement with Gateway Partners, that envisaged the consideration would be paid by an issue of new ordinary shares at the issue price.
“APDM has a team of highly skilled development staff and has the ability to develop in over 15 African countries. Acquiring a majority stake in APDM offers Grit the potential for new revenue and fee income streams, asset, and facilities management with respect to OBO and other discrete asset classes and accelerates our strategy of increasing exposure to the provision of professional services to our tenants and third parties,” she said.
APDM renders development management, asset management, advisory and administrative services to GREA in terms of an Asset Management and Advisory Services Agreement. In addition to managerial control of GREA, APDM is entitled to development management fees from GREA equal to approximately 4% of the total project costs of each development owned by GREA. APDM is further entitled to a standard annual fee of 1.5% of the fair value of completed properties owned by GREA.
APDM will be consolidated into Grit, whilst GREA will continue to be an associate.
Applications have been made with the FCA, the LSE and the SEM for the listing of 17,514,481 new ordinary shares being issued on the premium segment of the Official List of the FCA and to be admitted to trading on the Main Market of the LSE and for such new ordinary shares to be admitted to trading on the Official Market of the SEM with effect from commencement of trading on Tuesday, the 19th of April 2022.
Following the admission of the new ordinary shares pursuant to the transaction, Grit will have a total of 495,092,339 ordinary shares in issue.
Publication: Property Wheel