The seismic shifts in the real estate landscape, catalysed by the pandemic, have sparked new investment opportunities, particularly in Africa. As traditional sectors like retail and commercial offices undergo transformation, astute investors are seizing the upside presented by emerging, more resilient asset classes such as healthcare, data centres, logistics and consular housing.
The triple net nature, relatively superior yields, and generally longer lease terms of these assets are proving lucrative considerations for landlords.
As one of the largest, most diversified real estate investors on the continent, Grit has evolved its investment strategy to align with these transformative trends and unlock value for our stakeholders.
Our recent financial results for the six months to 31 December 2023 released yesterday (available here) underscore the efficacy of this approach and offers a glimpse into the potential rewards for those who remain steadfast in their investment journey.
Proof point for strong demand and market liquidity
Despite prevailing macroeconomic headwinds, Grit successfully divested over US$160 million in non-core assets during a challenging market environment. This not only demonstrates robust demand and liquidity within African real estate but also positions us to allocate capital strategically, amplifying value for our shareholders.
Moreover, our strategic exits from associate accounted properties, coupled with strategic investments in Diplomatic Housing, Healthcare, and Data Centers, have propelled a substantial 15.6% uplift in net operating income from ongoing operations, signalling the effectiveness of our repositioning efforts.
Capitalising on NAV uplift – a strategic imperative
In our pursuit of value creation, we’ve leveraged our deep-rooted relationships to incubate GREA, our development subsidiary. Through strategic partnerships with global entities and governments, we’re spearheading initiatives in consular accommodation, healthcare, call centres, and data centres.
These developments are not only poised to yield significant NAV uplift upon completion but also play a significant role in deepening the African real estate market with assets meeting international benchmarks for quality and sustainability.
Leveraging our real estate intellectual property
Developing and owning your assets in Africa provides a distinct advantage to capture the real estate value chain across all verticals, generating alternative revenue streams in addition to rental income, including development income, as well as through asset and property management services.
By leveraging our intellectual property, we generated close to US$6.8 million in fee income for the financial period to December 2023, with expectations of further growth as more critical mass is generated by developments coming on stream.
Group administrative costs were reduced by 15.4% during this period, and we remain on track to achieve a targeted US$4 million or 19% reduction in administrative costs by the end of the 2024 financial year.
The ability to provide these specialist skills to third parties further provides exciting opportunities to deliver additional income as we continue to set global real estate benchmarks in Africa.
Capital light strategy
The simplification of our strategy following the consolidation of GREA from January this year includes moving our assets into logical groupings. This provides for a “capital light” strategy, as co-investment opportunities are unlocked at the subsidiary level where we are able to provide minority interests in our specialist property verticals.
A proof point is the consolidation of Grit’s industrial and consular and corporate housing assets under the banner of Bora Africa in GREA, which facilitated a further US$48 million cash injection by GREA’s co-investor, the Public Investment Committee.
Finding the way
The high cost of emerging and frontier market debt continues to prove challenging. Grit sensibly hedged almost 80% of its US$ exposure and pioneered one of the largest sustainability-linked term loan and revolving credit facilities of its kind in Sub-Saharan Africa’s (excluding South Africa) real estate sector in 2022.
I believe that there will be increased momentum in Grit’s NAV as a result of GREA’s development portfolio coming on stream, as well as further leveraging our additional income earning capabilities.
Prudent capital allocation and settling expensive debt remain fundamental to the business, as this will have a direct impact on LTV and earnings through interest savings of up to US$4.1 million per annum as our initial target.
In closing, as stewards of capital, we recognize the importance of aligning our strategies with market dynamics and investor expectations. Grit 2.0 is the right strategy for Africa, and through disciplined execution and strategic foresight, we’re excited to build on the opportunities and unlock value for shareholders and all stakeholders, including the people of Africa.
