London-listed Grit Real Estate has reported a 3.5% year-on-year increase in net operating income from properties for the financial year ended June 30.

Further, 92.8% of the value of its contracted revenue had been collected in the year, up from 92.5% in the 2021 financial year.

Management’s continued focus on counterparty relationships and active tenant and asset management resulted in a higher occupancy rate of 95.3%, up from 94.7% in the prior financial year, predominantly owing to new leases concluded in the corporate offices and retail portfolios.

The retail sector across Africa appears to have stabilised and, when combined with acquisitions and investments in the period, the reported value of investment properties has increased by 6.9% in the financial year to $856.7-million.

“Grit has weathered the challenges over the Covid-19 period and, despite recent global uncertainty, is producing a robust underlying portfolio performance supported by our strong family of partnerships across the African continent,” noted Grit CEO Bronwyn Knight.

“Our resilient and defensive business and investment potential is backed by our high-quality assets, strong cash collection, increasing leasing activity, achieving contractual rental escalations, reducing debt levels and with the potential for progressive dividends and stronger net-asset value (NAV) growth going forward,” she said.

Total dividends declared for the year under review totalled $4.50 a share, compared with $1.50 a share in the 2021 financial year, representing an 89.8% payout ratio and a 12.67% dividend yield on the current share price.

Meanwhile, the company’s loan-to-value (LTV) meaningfully decreased to 46.7% from 53.1% in the prior financial year. Grit issued shares worth $76.3-million in December, the net cash proceeds which were used to decrease overall levels of debt.

The company has also undertaken a targeted acquisition of a controlling interest in Africa-focused real estate developer Gateway Real Estate Africa (GREA), which is expected to reinforce solid growth and reduce LTV while having a positive social impact, Knight said.

Additionally, and as a direct result of the equity placement being lower than targeted at that time, the acquisition of a controlling interest in GREA was restructured, settled in cash from revolving debt facilities, and the further direct LTV benefits of financial consolidation delayed.

Grit's LTV is expected to fall by 3.9% upon the consolidation of GREA.

“The board remains committed to reducing LTV levels to below its near-term target of 45% and then to its medium-term target of between 35% and 40%. Capital recycling initiatives to support this target in the financial year included the sale of 100% of ABSA House in Mauritius and part sales of the Orbit manufacturing facility and 4.9% of the Group’s holdings in Botswana-listed Letlole La Rona,” Knight said.

Grit acquired a bigger stake in GREA during the financial year, combined with operational control over GREA’s external asset manager, namely Africa Property Development Managers. These acquisitions are expected to contribute meaningfully to Grit’s ability to deliver enhanced profitable growth through GREA’s extensive and attractive pipeline of accretive development opportunities.

Grit has also agreed a pathway to securing a controlling interest in GREA. The potential optimisation of Grit and GREA’s balance sheets upon gaining control are expected to deliver further additional value to Grit’s shareholders and reduce the overall LTV for the group, considering GREA’s low gearing levels.

“Grit will continue to deploy its resources in owning and managing a diversified portfolio of high-quality real estate assets across the African continent, excluding South Africa, with strong valuation recovery potential post Covid-19 disruptions.

“We will also deploy resources in pursuing limited risk-mitigated real estate developments for existing and target tenants, predominantly focused on the industrial, embassy accommodation and data centres sectors, driving accelerated NAV growth into the future.

“Development exposure will not exceed more than 20% of the group's gross asset value and, upon completion, will be included in the income producing portfolio of the group, thereby underpinning future income growth, leading to an expectation of enhanced yield and income upon completion of the developments,” said Knight.

Grit will also deploy resources to support the generation of additional fee income from real estate, facilities and development management services to both internal clients and to third party clients and co-investors, which is expected to result in an expectation of enhanced income.

Meanwhile, on October 19, Grit concluded a syndicated sustainability linked cross-collateralised debt refinancing facility of up to $306-million, refinancing seven existing debt facilities of $279.1-million of existing debt facilities across Mozambique, Zambia, Ghana and Senegal, agreed a corporate revolving credit facility, and secured additional funding for the future redevelopment of Club Med in Senegal.

The landmark transaction, which is the largest sustainability-linked real estate debt transaction in sub-Saharan Africa, excluding South Africa, creates increased diversification and tenor in Grit’s debt, with optimal funding costs and a scalable long term debt solution, she explained.

Further, the group additionally entered into a further $100-million of notional interest rate hedges, thereby minimising the impact of expected global interest rate movements on the group’s weighted average cost of debt. Grit now has 73.3% of its dollar-denominated debt fixed.

“The decisive course correcting action by the board and management has yielded encouraging signs of growth, with many of the benefits initiated during the year under review expected to flow through in the current year and be sustained over the long term.

Notwithstanding these early signs of recovery, the board recognises the increased global instability, driven by higher interest rates, inflation and shortages of staple foods and fuel, largely owing to the Ukraine/Russia conflict.

“A higher inflationary environment supports revenue growth as a result of Grit’s inflation-linked contractual escalations, although real increases will be done in collaboration with tenants to ensure long-term sustainability.

“We are, however, well positioned for recovery in a post-pandemic environment, backed by strong cash collection, increased leasing activity, resilient assets and the potential for stronger NAV growth going forward. Upon the expected final completion of the acquisition of a controlling interest in GREA, the board’s total return target will increase from the current 12% to a range of between 13% and 15% a year,” concluded Knight.